Present value: Present value refers to the present worth of the money that is received in future in a lump sum or as series of cash flows at a specified interest rate. When these future sums of money are discounted at a higher rate, the present value of the future cash flows gets lower. Present value of an amount = Future value ( 1 + interest rate ) number of periods Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The future value of an amount is calculated by using the following formula: Future value of an amount = Present value × ( 1+ Interest rate ) Number of periods To determine: The present value of the following options .

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Chapter 5, Problem 5.10E

1.

To determine

Present value:

Present value refers to the present worth of the money that is received in future in a lump sum or as series of cash flows at a specified interest rate. When these future sums of money are discounted at a higher rate, the present value of the future cash flows gets lower.

Present value of an amount = Future value(1 + interest rate)number of periods

Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The future value of an amount is calculated by using the following formula:

Future value of an amount = Present value×(1+ Interest rate)Number of periods

To determine: The present value of the following options.

2.

To determine

The required fund balance after last payment is made on December 31, 2027.

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Exercise 5-15 (Static) Future and present value [LO5-3, 5-7, 5-8] Answer each of the following independent questions. 1. You recently won a lottery and have the option of receiving one of the following three prizes: (1) $64,000 cash immediately. (2) $20,000 cash immediately and a six-year annual annuity of $8,000 beginning one year from today, or (3) a six-year annual annuity of $13,000 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose? 2. A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $100,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made in ten years? Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of…

+ I/ MI * 00 B C. FL 44 CO %#3 The winner of a "million dollar" lottery is to receive $60,000 plus $60,000 at the end of each year for 39 years or the present value of this annuity in cash. How much cash would she receive if money is worth 8% compounded annualy? She would receive $. (Round to the nearest cent as needed.) Enter your answer in the answer box and then click Check Answer. Check Answer Clear All All parts showing Copyright O 2021 Pearson Education Inc. All rignts reserved. | Terms of Use Privacy Policy Permissions T ContactT here to search PrtSc F10 F11 F12 F8 SU F5 F6 F7 F4 & %23 G 4. Alt Alt

Appendix 1 30qre 13579 brodhorit onmoto d EX 14-19 Present value of an annuity niztos J On January 1, you win $60,000,000 in the state lottery. The $60,000,000 prize will be paid in equal installments of $6,000,000 over 10 years. The payments will be made on Decem- ber 31 of each year, beginning on December 31 of the current year. If the current interest rate is 6%, determine the present value of your winnings. Use the present value tables in Appendix A.