If the accumulated value at time n of $1 per year paid continuously each year for n years is 25% more than the accumulated value at time n of $1 per year paid at the end of each year for n years under the same interest rate assumption, then how does the present value at time zero of an annuity of $1 per year paid at the end of each year for n years compare to the present value of an annuity of $1 per year paid continuously each year for n years? A. The annuity immediate is about 15% less B. The annuity immediate is about 20% less C. The annuity immediate is about 25% less D. The annuity immediate is about 25% greater E. Cannot be determined from the information given.

If the accumulated value at time n of $1 per year paid continuously each year for n years is 25% more than the accumulated value at time n of $1 per year paid at the end of each year for n years under the same interest rate assumption, then how does the present value at time zero of an annuity of $1 per year paid at the end of each year for n years compare to the present value of an annuity of $1 per year paid continuously each year for n years? A. The annuity immediate is about 15% less B. The annuity immediate is about 20% less C. The annuity immediate is about 25% less D. The annuity immediate is about 25% greater E. Cannot be determined from the information given.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments

Section: Chapter Questions

Problem 3MC: Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of...

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Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of 5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of 1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for 5 periods is 6.74. The present value of 1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? a. 12,500 b. 16,750 c. 25,000 d. 33,700
(1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?