Patterns of Payment with a Deferred Annuity Time value of money problems may revolve around a number of different payment or receipt patterns. Not every situation will involve a single amount or an annuity. For example, a contract may call for the payment of a different amount each year over a three-year period. To determine present value, each payment is discounted to the present and then summed. (Assume 8% discount rate) 10 PV Factor n Payment X PV п of (1 +i)" >0.926 24926 1. $1,000 1,714 0.857 2,000 %3D 2. 2,382 0.794 %3D 3,000 3. $5,022 PV at time = 0

Patterns of Payment with a Deferred Annuity Time value of money problems may revolve around a number of different payment or receipt patterns. Not every situation will involve a single amount or an annuity. For example, a contract may call for the payment of a different amount each year over a three-year period. To determine present value, each payment is discounted to the present and then summed. (Assume 8% discount rate) 10 PV Factor n Payment X PV п of (1 +i)" >0.926 24926 1. $1,000 1,714 0.857 2,000 %3D 2. 2,382 0.794 %3D 3,000 3. $5,022 PV at time = 0

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

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 7MC

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(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%?
Computing Present Value of Annuity Payments Under Different Assumptions Compute the present value of the annuity stream for each of the four separate investment scenarios that follow. Round interest rate percentages to two decimal places in your calculations (for example, enter .0063 for .633333%). Round final answer to the nearest whole dollar. Do not use a negative sign with your answer. Investment 1 Investment 2 Investment 3 Investment 4 Annual interest rate 7% 6% 5% 8% Investment period in years 5 6 5 10 Compounding periods Quarterly Annually Semiannually Monthly Payment per compounding period $10,000 $36,000 $20,000 $2,000 First payment Beg. of period End of period End of period Beg. of period Present Value Answer Answer Answer Answer
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