Question

Suppose you are going to receive $13,600 per year for six years. The appropriate interest rate is 8.5 percent. a. What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Suppose you plan to invest the payments for six years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. Suppose you plan to invest the payments for six years. What is the future value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

a. What is the present value of the payments if they are in the form of an ordinary annuity?

present value = annual payment x annuity factor

• annual payment = $13,600
• PV annuity factor, 8.5%, 6 periods = 4.55359

present value = $61,928.82

b. What is the present value if the payments are an annuity due?

present value = annual payment x annuity due factor

• annual payment = $13,600
• PV annuity due factor, 8.5%, 6 periods = 4.94064

present value = $67,192.70

c. Suppose you plan to invest the payments for six years. What is the future value if the payments are an ordinary annuity?

future value = annual payment x annuity factor

• annual payment = $13,600
• FV annuity factor, 8.5%, 6 periods = 7.42903

future value = $101,034.81

d. Suppose you plan to invest the payments for six years. What is the future value if the payments are an annuity due?

future value = annual payment x annuity due factor

• annual payment = $13,600
• FV annuity due factor, 8.5%, 6 periods = 8.0605

future value = $109,622.80