Question

In: Finance

1. The present value of an ordinary annuity is determined on the last day of the...

1. The present value of an ordinary annuity is determined

on the last day of the first annuity period.

on the first day of the first annuity period.

on the last day of the last annuity period.

immediately before the first cash flow in the series occurs.

(Click here to access the time value of money tables to use with this problem.)

2. What is the present value (rounded to nearest dollar) of a series of bond interest payments of $2,000 each paid semiannually for 4 years when the annual interest rate is 8%?

$6,624

$11,465

$13,465

$16,000

Future Value of 1: fn,i 5 (1 þ i ) n n 1.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 1 1.015000 1.040000 1.045000 1.050000 1.055000 1.060000 1.070000 2 1.030225 1.081600 1.092025 1.102500 1.113025 1.123600 1.144900 3 1.045678 1.124864 1.141166 1.157625 1.174241 1.191016 1.225043 4 1.061364 1.169859 1.192519 1.215506 1.238825 1.262477 1.310796 5 1.077284 1.216653 1.246182 1.276282 1.306960 1.338226 1.402552 6 1.093443 1.265319 1.302260 1.340096 1.378843 1.418519 1.500730 7 1.109845 1.315932 1.360862 1.407100 1.454679 1.503630 1.605781 8 1.126493 1.368569 1.422101 1.477455 1.534687 1.593848 1.718186 9 1.143390 1.423312 1.486095 1.551328 1.619094 1.689479 1.838459 10 1.160541 1.480244 1.552969 1.628895 1.708144 1.790848 1.967151 11 1.177949 1.539454 1.622853 1.710339 1.802092 1.898299 2.104852 12 1.195618 1.601032 1.695881 1.795856 1.901207 2.012196 2.252192 13 1.213552 1.665074 1.772196 1.885649 2.005774 2.132928 2.409845 14 1.231756 1.731676 1.851945 1.979932 2.116091 2.260904 2.578534 15 1.250232 1.800944 1.935282 2.078928 2.232476 2.396558 2.759032 16 1.268986 1.872981 2.022370 2.182875 2.355263 2.540352 2.952164 17 1.288020 1.947900 2.113377 2.292021 2.484802 2.692773 3.158815 18 1.307341 2.025817 2.208479 2.406619 2.621466 2.854339 3.379932 19 1.326951 2.106849 2.307860 2.526950 2.765647 3.025600 3.616528 20 1.346855 2.191123 2.411714 2.653298 2.917757 3.207135 3.869684 21 1.367058 2.278768 2.520241 2.785963 3.078234 3.399564 4.140562 22 1.387564 2.369919 2.633652 2.925261 3.247537 3.603537 4.430402 23 1.408377 2.464716 2.752166 3.071524 3.426152 3.819750 4.740530 24 1.429503 2.563304 2.876014 3.225100 3.614590 4.048935 5.072367 25 1.450945 2.665836 3.005434 3.386355 3.813392 4.291871 5.427433 26 1.472710 2.772470 3.140679 3.555673 4.023129 4.549383 5.807353 27 1.494800 2.883369 3.282013 3.733456 4.244401 4.822346 6.213868 28 1.517222 2.998703 3.429700 3.920159 4.477843 5.111687 6.648838 29 1.539981 3.118651 3.584036 4.116136 4.724124 5.418388 7.114257 30 1.563080 3.243398 3.745318 4.321942 4.983951 5.743491 7.612255 (continued)

Solutions

Expert Solution

on the first day of the first annuity period.

4.0000%
Cash flows Year Discounted CF
                           -   0 0.00
              2,000.00 1 1923.08
              2,000.00 2 1849.11
              2,000.00 3 1777.99
              2,000.00 4 1709.61
              2,000.00 5 1643.85
              2,000.00 6 1580.63
              2,000.00 7 1519.84
              2,000.00 8 1461.38

Present value = 13,465


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