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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.

jeff jeffy answered 5 months ago
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