Homework Answers
Part (a)
By formula, PV = A / r x [1 - (1 + r)-n] = 50,000 / 0.12 x [1 - (1 + 0.12)-15] = $ 340,543
Using financial calculator, PMT = 50,000; n = 15; I/Y = 0.12, FV = 0; PV = ?
You should get PV as = $ 340,543.22 = $ 340,543
Part (b)
Value of his deferred annuity = PV as calculated above / (1 + r)t = 340,543 / (1 + 0.12)2 = $ 271,479
Using calculator, FV = 340,523; I / Y = 0.12; n = 2; PMT = 0: PV = ?
You should get PV as = $ 271,479
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