Question

K. Higher is the discount rate, higher is the present value True Or False

L. You want to buy a car for cash 4 years from now for a cash price of $25000. To this end you want to make an annuity deposit each year so that you accumulate the required amount. Interest rate is 8%. If deposits are made at the begiining of each period, then your annual payment will be approximately $5548.02 True Or  False

M. You want to buy a car for cash 4 years from now for a cash price of $25000. To this end you want to make an annuity deposit each year so that you accumulate the required amount. Interest rate is 8%. In the case of annuity due, your annual payments will be equal to approximately $5137.06 True Or False

Answer 1

K.Present value is the current value of a future sum of money. Higher the discount rate, lower is the present value of future cash flows.

Hence, the statement is false.

M. Information provided:

Present value= $25,000

Time= 4 years

Interest rate= 8%

The question is concerning finding the annuity payment of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator in BGN mode to compute the annuity payment :

PV= -25,000

N= 4

I/Y= 8

Press the CPT key and PMT to compute the amount of annuity payment.

The value obtained is 6,988.91.

Therefore, the amount of annuity payment is $6,988.91.

Hence, the statement is false.

N. Information provided:

Future value= $25,000

Time= 4 years

Interest rate= 8%

The question is concerning finding the annuity payment of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator in BGN mode to compute the annuity deposit :

FV= 25,000

N= 4

I/Y= 8

Press the CPT key and PMT to compute the amount of annuity deposit..

The value obtained is 5,137.06.

Therefore, the amount of annuity deposit is $5,137.06.

Hence, the statement is false.

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