   Chapter 14, Problem 14.18EX

Chapter
Section
Textbook Problem

Present value of an annuityDetermine the present value of $200,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, as follows:a. By successive computations, using the present value table in Exhibit 8.b. By using the present value table in Exhibit 10.c. Why is the present value of the four$200,000 cash receipts less than the $800,000 to be received in the future? (a) To determine Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. To calculate: The present value of$200,000 (Future amount).

Explanation

Calculate the present value of $200,000 (Future amount) by using present value table in Exhibit  Calculation Present Value First Year$200,000×0.93458 $186,916 Second Year$200,000×0

(b)

To determine

To calculate: The present value of $200,000 (Future amount) by using present value table in Exhibit 10. (c) To determine To explain: The reason why present value of four$200,000 cash receipts is less than \$800,000 to be received in future.

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