Carrie Tune will earn $32,800 for the next 16 years as a payment for a new song
ID: 2598574 • Letter: C
Question
Carrie Tune will earn $32,800 for the next 16 years as a payment for a new song she has written.
a. How much are her earnings worth now if the interest rate is 17 percent? (Enter your answer as a whole number rounded to 2 decimal places.)
b. Should she be willing to sell her future earnings now for $208,000?
No
Yes
2. What is the present value of a 9-year annuity of $4,000 per year that has payments made at the beginning of each year? The interest rate is 13 percent. (Enter your answer as a positive number rounded to 2 decimal places. )
Explanation / Answer
Q- a) ........ Present value of annuity = Annuity * [ 1 - (1.17)-16 ] / 0.17
= 32800 * 5.405288 = 177,293.45
Q - b ) ..........Yes
Because 208000 is greater than 177,293.45
Question - 2
A + A * [ 1 - (1 + r ) -n ] / r ........ shall give the present value of annuity due which is immediate.
4000 + 4000 * [ 1 - (1.13)-9 ] / 0.13 = 24,526.62