Calculating
Annuity Payment | Years | Interest Rate |
$ 2,100 | 7 | 5% |
1,095 | 9 | 10 |
11,000 | 18 | 8 |
30,000 | 28 | 14 |
To calculate: The present value.
Introduction:
An annuity is a level stream of flow of cash for a particular period. They often appear in financial arrangements and it is a shortcut used for finding the values.
Answer to Problem 6QP
- The present value for the annuity payment of $2,100 which is given for 7 years at an interest rate of 5% is $12,151.38.
- The present value for the annuity payment of $1,095 which is given for 9 years at an interest rate of 10% is $6,306.13.
- The present value for the annuity payment of $11,000 which is given for 18 years at an interest rate of 8% is $103,090.76.
- The present value for the annuity payment of $30,000 which is given for 28 years at an interest rate of 14% is $208,819.87.
Explanation of Solution
Given information:
The details of annuity payment, number of years, and interest rate are provided. The annuity payment of $2,100 is given for 7 years at an interest rate of 5%. The timeline is as follows:
The annuity payment of $1,095 is given for 9 years at a rate of 10%. The timeline is as follows:
The payment of $11,000 is given for 18 years at a rate of 8%. The timeline is as follows:
The payment of $30,000 is given for 28 years at a rate of 14%. The timeline is as follows:
Formula to calculate the present value annuity:
Note: C denotes the annuity payment or an annual cash flow, r denotes the rate of exchange, and t denotes the period.
Compute the present value annuity for $2,100 at 5%:
Hence, the present value annuity is $12,151.38.
Compute the present value annuity for $1,095 at 10%:
Hence, the present value annuity is $6,306.13.
Compute the present value annuity for $11,000 at 8%:
Hence, the present value annuity is $103,090.76.
Compute the present value annuity for $30,000 at 14%:
Hence, the present value annuity is $208,819.87.
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Chapter 5 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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