Question

Find the present values of these ordinary annuities. Discounting occurs once a year. Round your answers to the nearest cent.

1. $500 per year for 14 years at 4%.

   $  

2. $250 per year for 7 years at 2%.

   $  

3. $300 per year for 4 years at 0%.

   $  

   Rework previous parts assuming that they are annuities due. Round your answers to the nearest cent.

4. $500 per year for 14 years at 4%.

   $  

5. $250 per year for 7 years at 2%.

   $  

6. $300 per year for 4 years at 0%.

   $  

Answer 1

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

1.Present value=500[1-(1.04)^-14]/0.04

=500*10.56312293

=$5281.56(Approx).

2.Present value=250[1-(1.02)^-7]/0.02

=250*6.471991069

=$1618(Approx).

3.Present value=300*4

=$1200

Present value of annuity due=Present value of annuity*(1+rate)

1.Present value=5281.56*1.04

=$5492.82(Approx).

2.Present value=1618*1.02

=$1650.36(Approx).

3.Present value=300*4

=$1200