Chapter 14, Problem 14.20EX

### Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Chapter
Section

### Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

# Present value of an annuityAssume the same data as in Exercise 14-19, except that the current interest rate is 10%.Will the present value of your winnings using an interest rate of 10% be more than the present value of your winnings using an interest rate of 6%? Why or why not?

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 determine: The increase or decrease in present value of winnings using an interest rate of 10% and 6%.

Explanation

The present value of winnings using an interest rate of 10% will be not more than the present value of winnings using an interest rate of 6% because the winnings are affected by the greater interest rate.

The present value of winnings using an interest rate of 10% is $36,867,420 ($6,000,000×6

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