Question

W6: Problem 8 Previous Problem ListNext (1 point) a) Find the present value of an annuity-immediate which pays 1 at the end of each half-year for 9 years, if the rate of interest is 72% convertible semiannually for the first 5 years and 11.3% convertible semiannually for the last 4 years ANSWER (round off to three decimal digits): b) Find the present value of an annuity-immediate which pays 1 at the end of each half-year for 9 years, if all payments in the first 5 years are discounted at a nominal interest rate 7.2% convertible semiannually and all payments in the last 4 years are discounted at a nominal interest rate 11 3% convertible semiannually. ANSWER (round off to three decimal digits Note: You can earn partial credit on this problem. Preview My Answers Submit Answers You have attempted this problem 0 times You have unlimited attempts remaining Email instructor

Answer 1

Value of annuity at begining of year 5is present value of annuity at 11.30% interest rate..Value of annuity after 5 year is calculated in excel and screen shot provided below:

B5 fiB3,B2 2,-B1) $1 1 Semiannual Payment 2 Tenure 3 Semianual Rate 4 5 Present Value 4 year 11.30% $5.09

Value of annuity after 5 year is $5.09.

Now, this value is considered as future value for annuity discounting at 7.20%. Present value of 9 year annuity is calculated in excel and screen shot provided below:

B6 xVB4,B3*2,-B2,-B1) 1 Value after 5 year 2 Semiannual Payment 3 Tenure $5.09 $1 year 4 Semianual Rate 6 Present Value $9.50 7

Present value of annuity is $9.50.