Question

Present value of an annuity

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

1. $300 per year for 10 years at 4%.

   $  

2. $150 per year for 5 years at 2%.

   $  

3. $200 per year for 12 years at 0%.

   $  

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

4. $300 per year for 10 years at 4%.

   $  

5. $150 per year for 5 years at 2%.

   $  

6. $200 per year for 12 years at 0%.

   $  

Answer 1

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

1.Present value=300[1-(1.04)^-10]/0.04

=300*8.110895779

=$2433.27(Approx).

2.Present value=$150[1-(1.02)^-5]/0.02

=$150*4.713459509

=$707.02(Approx).

3.Present value=$200*12

=$2400

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

4.Present value =$2433.27*1.04

=$2530.60(Approx).

5.Present value=$707.02*1.02

=$721.16(Approx).

6.Present value=$200*12

=$2400