Question
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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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