9. A 5-year $150 ordinary annuity has an annual interest rate of 8%. What is its...

9. A 5-year $150 ordinary annuity has an annual interest rate of 8%. What is its present value?

What would the present value be if it was a 10-year annuity?

What would the present value be if this was a perpetuity?

Expert Solution

a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=150[1-(1.08)^-5]/0.08

=150*3.99271004

=$598.91(Approx)

b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=150[1-(1.08)^-10]/0.08

=150*6.7100814

=$1006.51(Approx)

c.Present value of perpetuity=Annual cash flows/interest rate

=150/0.08

=$1875

jeff jeffy answered 2 years ago

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