If the present value of an ordinary, 6-year annuity is $5,900 and interest rates
ID: 2820328 • Letter: I
Question
If the present value of an ordinary, 6-year annuity is $5,900 and interest rates are 7.5 percent, what’s the present value of the same annuity due? (Round your answer to 2 decimal places.)
What's the present value of a $590 annuity payment over four years if interest rates are 8 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Thank you
What's the present value of a $590 annuity payment over four years if interest rates are 8 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Thank you
Explanation / Answer
Preesent value of annuity = P (1-(1+r)^-n/r)
5900 = P(1-(1+7.5%)^-6/7.5%)
P = $1256.96 (approx.)
Present value of annuity due = (P [(1 - (1 / (1 + r)^n)) / r]) x (1+r)
= (1256.96[(1-(1/1+7.5%)^6/7.5%]) * (1+7.5%)
= $$6,342.48
Present value of a $590 annuity payment over four years if interest rates are 8 percent
= Present Value = P (1-(1+r)^-n/r)
= $1,954.15