Question

Suppose you are going to receive $19,000 per year for 6 years. the appropriate interest rate is 11 percent.

a. what is the present value of the payments if they are in the form of an ordinary annuity?

b. what is the oresent value if the payments are an annuity due?

c. suppose you plan to invest the payments for 6 years, what is the future value if the payments are an ordinary annuity?

d. suppose you plan to invest the payments for 6 years, what is the future value if the oayments are an annuity due?

Answer 1

a. Present value of payments in the form of ordinary annuity

where:
P = Present value of an annuity
PMT = Amount of each annuity payment
r = Interest rate in decimal
n = Number of periods in which payments will be made

Present Value of an Ordinary annuity due = $80380.22

b. Present value if the payments are an annuity due

Present Value of an annuity due = $89222.04

c. Future value if the payments are an ordinary annuity

where:
P = Future value of an annuity
PMT = Amount of each annuity payment
r = Interest rate in decimal
n = Number of periods in which payments will be made

Future Value of an Ordinary annuity = $150344.3

d. future value if the payments are an annuity due

Future Value of an Ordinary annuity due = $166882.2

I hope this clear your doubt.

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