Final answer:
To determine the present value of 8 equal annual payments, one would use a present value annuity factor at a 10% interest rate from provided tables. An example using a two-year bond illustrates the present value concept, where both interest and principal payments are discounted back to their present values at given interest rates.
Step-by-step explanation:
To calculate the present value of 8 equal payments of $23,500 to be made at the end of each year for the next 8 years with an annual interest rate of 10%, we use the formula for present value of an annuity. However, since the question references using a table for calculations, you would look up the present value factor for an annuity given an interest rate of 10% over 8 periods.
Here is a simplified example of calculating present value using a different scenario:
Consider a two-year bond with a principal of $3,000 and an annual interest rate of 8%. The bond would pay $240 in interest each year ($3,000 x 8%), and return the principal in the second year.
Using a discount rate of 8%, the present value of the first year's interest would be $240 / (1 + 0.08), and the present value of the second year's payment (interest plus principal) would be $3,240 / (1 + 0.08)^2.
If the interest rate rose to 11%, the present values would be lower because the discounting would be more substantial, as shown in Table C2, even though the future dollar payments remain unchanged.