Question

a-1. Annual payment of $1,025 for 11 years at 4% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-2. Annual payment of $825 for 16 years at 4% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-3. Which option would you prefer? b-1. Annual payment of $1,025 for 11 years at 16% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-2. Annual payment of $825 for 16 years at 16% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

a-1// 8,979.49

a-2// 9613.14

b-1// 5,154.36

b-2// 4,676.51

Step-by-step explanation:

We will calculate each present value using the formula for present value of an ordinary annuity:

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

a-1

C 1,025

time 11

rate 0.04

`1025 * (1-(1+0.04)^(-11) )/(0.04) = PV\\`

PV $8,979.4886

a-2

C 825

time 16

rate 0.04

`825 * (1-(1+0.04)^(-16) )/(0.04) = PV\\`

PV $9,613.1439

b-1

C 1,025

time 11

rate 0.16

`1025 * (1-(1+0.16)^(-11) )/(0.16) = PV\\`

PV $5,154.3605

b-2

C 825

time 16

rate 0.16

`825 * (1-(1+0.16)^(-16) )/(0.16) = PV\\`

PV $4,676.5098