Using the appropriate present value table and assuming a 12% annual interest rate, determine the present value on December 31, 2016, of a five-period annual annuity of $5,000 under each of the following situations: 1. The first payment is received on December 31, 2017, and interest is compounded annually. 2. The first payment is received on December 31, 2016, and interest is compounded annually. 3. The first payment is received on December 31, 2017, and interest is compounded quarterly.

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Asked Jan 16, 2020
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Using the appropriate present value table and assuming a 12% annual interest rate, determine the present value on December 31, 2016, of a five-period annual annuity of $5,000 under each of the following situations: 1. The first payment is received on December 31, 2017, and interest is compounded annually. 2. The first payment is received on December 31, 2016, and interest is compounded annually. 3. The first payment is received on December 31, 2017, and interest is compounded quarterly.

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Expert Answer

Step 1

An ordinary annuity refers to the equal payments made at the end of a fixed period i.e., yearly, monthly or quarterly.

An annuity due is an annuity whose payment become due in the beginning of every period.

Step 2

1)

Annual annuity payment: $5,000

Rate: 12%

nper: 5 years

First payment is received on December 31, 2017.

Interest is compounded annually.

This is ordinary annuity.

Present value of annuity of $1 at 12% at 5 years: 3.60478

Present value of annuity is calculated as:

Accounting homework question answer, step 2, image 1
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Step 3

2)

Annual annuity payment: $5,000

Rate: 12%

nper: 5 years

First payment is received on December 31, 2016.

Interest is compounded annually.

This is annuit...

Accounting homework question answer, step 3, image 1
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