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Use the table below to answer the following questions: Present Value of 1 Factor Present Value...

Use the table below to answer the following questions: Present Value of 1 Factor Present Value of an Annuity of 1 Factor Period 1/2 Yr Full-Yr 1/2 Yr Full-Yr 1 0.9578 0.9174 0.9578 0.9174 2 0.9174 0.8417 1.8753 1.7591 3 0.8787 0.7722 2.7540 2.5313 4 0.8417 0.7084 3.5957 3.2397 5 0.8062 0.6499 4.4019 3.8897 6 0.7722 0.5963 5.1740 4.4859 Assumption: Required annual effective rate (EPR) of return is 9%. If an investment pays you $54,000 every 6 months for 3 years, what is its present value?

Solutions

Expert Solution

Following Table provided -

Present value Factor Present Value Annuity Factor
Period Half-year Full-year Half-year Full-year
1 0.9578 0.9174 0.9578 0.9174
2 0.9174 0.8417 1.8753 1.7591
3 0.8787 0.7722 2.7540 2.5313
4 0.8417 0.7084 3.5957 3.2397
5 0.8062 0.6499 4.4019 3.8897
6 0.7722 0.5963 5.1740 4.4859

Computation of Present value of Investment

Half yearly (6-months) = $54,000

No. of Payment(t) = 3*2 = 6

Effective rate = 9%

thus,

We can calculate the Present value of Investment with following equation -

where,

I = Present value of investment

P = Periodic payment (every 6 months)

n = no of payment

r = interest rate for one period

putting the values -

value of Present value annuity factor (PVAIF) provided in table, see- (Period-6, Present value Annuity factor, Half year)

(rounded to nearest dollar)

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.


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