PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 2, Problem 38PS
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Calculate the future value of an annuity, with case A being an ordinary annuity and case B being an annuity due.
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Using a spreadsheet generate your own set of Discount and AnnuityTables for, say, all discount rates between 1% and 20% (at 1 percentagepoint intervals) and for time periods 1 to 30 (at one time periodintervals), as well as time periods 50 and 100. You should generate thesetables by inserting the numbers for the time periods in the first columnof each row and the discount rates in the first row of each column, andthen inserting the appropriate formula into one cell of the table – year 1at 1% - and then copying it to all other cells in the matrix. (Hint: Do notforget to anchor the references to periods and discount rates using the“$” symbol.)Answer: Write the discount formula into spreadsheet as shown below and then copyacross 20 columns (headed 1% through 20%) and down 50 rows (headed 1 to 50).
Present value of an annuity Consider the following case. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Amount of annuity
Interest rate
Period (years)
$26,000
9%
4
a. Calculate the present value of the annuity assuming that it is
(1) An ordinary annuity.
(2) An annuity due.
b. Compare your findings in parts
a(1)
and
a(2).
All else being identical, which type of
annuity—ordinary
or annuity
due—is
preferable? Explain why.
Chapter 2 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- I already have the values I just need someone to explain the calculations, such as what numbers are used to get the future values in each problem. Specifically how to multiply the annuities and interest rates to get the future values and for the last one explain how it is calculated with the interest after the annuity due stopsarrow_forwardfill in the missing annuity in the following table foe an ordinary annuity streamarrow_forwardPresent value of an ordinary annuity. Fill in the missing present values in the following table for an ordinary annuity:arrow_forward
- Solve for time using future value of an annuity formulaarrow_forwardUsing an annuity, you may calculate the present value of a single payment or a series of payments you will receive. Is this statement correct or incorrect?arrow_forwardSelect all the statements that apply to an ordinary annuity. The end of the annuity's term does not coincide with the last payment. The beginning of the annuity's term coincides with the first payment. The beginning of the annuity's term occurs one payment interval before the first payn The end of the annuity's term coincides with the last payment. Need help? Review these concept resources. (1]) Read About the Concept Rate your confidence to submit your answer.arrow_forward
- Find the future value and the present value of each ordinary annuity.arrow_forwardIn the present value of an annuity due table, the factors ________. Group of answer choices decrease as the interest rates increase, given a set number of periods decrease as the periods increase, given a set interest rate increase as the periods decrease, given a set interest rate increase as the interest rates increase, given a set number of periodsarrow_forwardFind the future value and present value of each annuity due.arrow_forward
- Which of following formulas is used to calculate the present value of a perpetual annuity? Seleccione una: a. P= f / (1+i)^n b. P= f / (i - g) c. P= a / (i - g) d. P= a / (1+i)^n e. F = P * (1+i)^narrow_forwardcan you do a full solution to calculate the annuity and to build up a loan repayment repayment schedule thank youarrow_forwardThe present value of an annuity is the amount needed now so that desired annuity payments may be made in the future. In this scenario annuity payments will be made at the beginning of each month. Thus, this is an annuity due. To find the present value of this annuity, the amount of money that should be deposited in an account now, the interest rate per period must first be found. The interest rate per period is calculated using the nominal, or annual, rate and the number of periods per year as follows. interest rate per period = nominal rate periods per year The rate was given to be 6%. Interest is compounded monthly, or 12 times per year. Find the interest rate per period. interest rate per period = nominal rate periods per year = % 12 = % The total number of compounding periods will be 1 less than the number of years annuity payments will be made multiplied by the number of compounding periods per year. There are 12…arrow_forward
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