Question

1.)How much is this annuity worth today? It will payout $630 each quarter for 30 years. Your desired annual interest return is 4.8 %. (Don't forget to adjust the interest rate for quarterly, in addition to the time period.) $40,473.27 $39,954.22 $46,003.28 $46,486.44 $39,637.64

2.)Your savings contract will pay you $260 each month for the next 4 years . With a 7 percent nominal annual interest rate, what is this contract worth today? Adjust the interest rate and number of periods for monthly (see practice)

	$10,857.65
	$12,480.00
	$10,586.65
	$11,166.65
	$9,128.00

Answer 1

Solution 1
	PV of annuity for making pthly payment
	P = PMT x (((1-(1 + r) ^- n)) / i)
	Where:
	P = the present value of an annuity stream	To be computed
	PMT = the dollar amount of each annuity payment	$ 2,520.00	630*4
	r = the effective interest rate (also known as the discount rate)	4.89%	((1+4.80%/4)^4)-1)
	i=nominal Interest rate	4.80%
	n = the number of periods in which payments will be made	30
	PV of annuity=	PMT x (((1-(1 + r) ^- n)) / i)
	PV of annuity=	2520* (((1-(1 + 4.89%) ^- 30)) /4.80%)
	PV of annuity=	$39,954.22
Solution 2
	PV of annuity for making pthly payment
	P = PMT x (((1-(1 + r) ^- n)) / i)
	Where:
	P = the present value of an annuity stream	To be computed
	PMT = the dollar amount of each annuity payment	$ 3,120.00	260*12
	r = the effective interest rate (also known as the discount rate)	7.23%	((1+7%/12)^12)-1)
	i=nominal Interest rate	7.00%
	n = the number of periods in which payments will be made	4
	PV of annuity=	PMT x (((1-(1 + r) ^- n)) / i)
	PV of annuity=	3120* (((1-(1 + 7.23%) ^- 4)) /7%)
	PV of annuity=	$10,857.65