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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

PRESENT VALUE OF AN ANNUITY Find the present values of these ordinary annuities. Discounting occurs once a year.

  1. a. $600 per year for 12 years at 8%
  2. b. $300 per year for 6 years at 4%
  3. c. $500 per year for 6 years at 0%
  4. d. Rework parts a, b, and c assuming they are annuities due.

a.

Summary Introduction

To calculate: Present value of annuity at $600 per year for 12 years at 8%.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

Explanation

Formula to calculate present value of annuity is,

PVAnnuity=C×[1I1I×(1+I)N] (I)

Where,

  • PV is the present value.
  • C is the monthly payment made.
  • I is the interest rate.
  • N is the number of years.

Substitute $600 for C, 8% for I and 12 for N in equation (I)

b.

Summary Introduction

To calculate: Present value of annuity at $300 per year for 6 years at 4%.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

c.

Summary Introduction

To calculate: Present value of annuity of $500 for a year for 6 years at 0%.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

d.

Summary Introduction

To calculate: Annuity due.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

d. a.

Summary Introduction

To calculate: Annuity due.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

b.

Summary Introduction

To calculate: Annuity due.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

c.

Summary Introduction

To calculate: Annuity due.

Annuity:

It is an agreement under which the person pays the lump sum payment or the number of small transactions and in return he gets the amount at later date or upon annuitization. The purpose of the annuity is not to break the flow of income after retirement.

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