Question

--- (a) What is the present value of $28,000 due 13 periods from now, discounted at 5%? (Round answer to 2 decimal places, es. 25.25.) Present value $ (b) What is the present value of $28,000 to be received at the end of each of 6 periods, discounted at 10%? (Round answer to 2 decimal places, eg. 25.25.) Present values

Answer 1

Ans. 1	We need to calculate the Present value factor for 13th period as the amount dues
	in this year (period) .
	*Calculation of Present value factor @5 %.
	Periods		PV @ 5%
	1	1 / (1 + 0.05)^1	0.95238
	2	1 / (1 + 0.05)^2	0.90703
	3	1 / (1 + 0.05)^3	0.86384
	4	1 / (1 + 0.05)^4	0.82270
	5	1 / (1 + 0.05)^5	0.78353
	6	1 / (1 + 0.05)^6	0.74622
	7	1 / (1 + 0.05)^7	0.71068
	8	1 / (1 + 0.05)^8	0.67684
	9	1 / (1 + 0.05)^9	0.64461
	10	1 / (1 + 0.05)^10	0.61391
	11	1 / (1 + 0.05)^11	0.58468
	12	1 / (1 + 0.05)^12	0.55684
	13	1 / (1 + 0.05)^13	0.53032
	Present value =   Amount * Present value of 1 factor for 13th period
		$28,000 * 0.53032
		$14,848.96
Ans. 2	The amount received at the end of each period so we need to calculate the
	Present value of an annuity of at 10%
	*Calculation of Present value factor @ 10%.
	Periods		PV @ 10%
	1	1 / (1 + 0.10)^1	0.90909
	2	1 / (1 + 0.10)^2	0.82645
	3	1 / (1 + 0.10)^3	0.75131
	4	1 / (1 + 0.10)^4	0.68301
	5	1 / (1 + 0.10)^5	0.62092
	6	1 / (1 + 0.10)^6	0.56447
	Total of Present value of an annuity		4.35526
	Present value =   Amount * Present value of an annuity factor
		$28,000 * 4.35526
		$121,947.28