e the attached present and future value tables to answer the following questions: Tom pays $2,400 per year for rent on the first of January each year. He wants to deposit an amount in his 6% investment today that will allow him to draw $2,400 each year for the next 5 years. How much will he need to deposit today in order to draw $2,400 per year for 5 years? Round percentages and ratios to the nearest tenth of a percent, dollars to nearest whole dolla
e the attached present and future value tables to answer the following questions: Tom pays $2,400 per year for rent on the first of January each year. He wants to deposit an amount in his 6% investment today that will allow him to draw $2,400 each year for the next 5 years. How much will he need to deposit today in order to draw $2,400 per year for 5 years? Round percentages and ratios to the nearest tenth of a percent, dollars to nearest whole dolla
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Use the attached present and future value tables to answer the following questions:
Tom pays $2,400 per year for rent on the first of January each year. He wants to deposit an amount in his 6% investment today that will allow him to draw $2,400 each year for the next 5 years. How much will he need to deposit today in order to draw $2,400 per year for 5 years?
Round percentages and ratios to the nearest tenth of a percent, dollars to nearest whole dollar
________dollars
Transcribed Image Text:# Present Value Table
## Present Value of a Lump Sum Payment (Compound Interest)
This table shows the present value of a lump sum payment for different numbers of periods and interest rates.
| Periods | Interest Rates (r) |
|---------|--------------------|
| | 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% |
| 1 | 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 |
| 2 | 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 |
| 3 | 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 |
| 4 | 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 |
| 5 | 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 |
| 6 | 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 |
| 7 | 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 |
| 8 | 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 |
| 9 | 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0
Transcribed Image Text:**Present Value of a Periodic Payment (Annuity)**
This table displays the future value of an annuity for various interest rates and periods. The table can be used to determine the present value of periodic payments, providing a comprehensive tool for financial planning.
### Table Columns:
- **Period:** Number of payment periods.
- **Interest Rates:** 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%.
### Example Entries:
- **Period 1:**
- 1%: 1.0000
- 2%: 1.0200
- 3%: 1.0300
- Up to 10%: 1.1000
- **Period 36:**
- 1%: 43.077
- 2%: 51.994
- 3%: 63.276
- Up to 10%: 299.127
### Explanation:
Each cell represents the present value of an annuity for a given period and interest rate. The higher the interest rate or the longer the period, the greater the future value, reflecting compound interest effects over time.
At the bottom of the table, it is indicated that the values represent the "Future Value of an Annuity," emphasizing their use in financial forecasting and decision-making.
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