2. Present Value and Multiple Cash Flows Investment X offers to pay you $5,300 per year for eight years, whereas Investment Y offers to pay you $7,300 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent? 6. Calculating Annuity Values For each of the following annuities, calculate the present value. Annuity Payment Years Interest Rate $ 1,750 7 1,390 9 18 28 17,500 50,000 5% 10 8 14

2. Present Value and Multiple Cash Flows Investment X offers to pay you $5,300 per year for eight years, whereas Investment Y offers to pay you $7,300 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent? 6. Calculating Annuity Values For each of the following annuities, calculate the present value. Annuity Payment Years Interest Rate $ 1,750 7 1,390 9 18 28 17,500 50,000 5% 10 8 14

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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5. Consider an annuity where you receive $1,000 payments at the end of each year for the next 20 years. Assume the discount rate is 1.5%. What is the present value of this stream of income payments?
At a discount rate of 6.00%, find the present value of a perpetual payment of $ 1,000 per year. If the discount rate were lowered to 3.00%, half the initial rate, what would be the value of the perpetuity? Question content area bottom Part 1 a. If the discount rate were 6.00%, the present value of the perpetuity is $ enter your response here . (Round to the nearest cent.)
Suppose you are going to receive $11,000 per year for 8 years. The appropriate interest rate is 11 percent per year. Requirement 1: What is the present value of the payments if they are in the form of an ordinary (a)annuity (cash flow starts at the end of the first compounding period)? (Click to select) (b) What is the present value if the payments are an annuity due (cash flow starts at the beginning of the first compounding period)? (Click to select) Requirement 2: (a)Suppose you plan to invest the payments for 8 years, what is the future value if the payments are an ordinary annuity? (Click to select) (b)Suppose you plan to invest the payments for 8 years, what is the future value if the payments are an annuity due? (Click to select)
1. Find the amount of an ordinary annuity consisting of 24 monthly payments of $150 that earn interest at 10% per year compounded monthly. Round to the nearest cent. b. Find the present value of an ordinary annuity consisting of 18 monthly payments of $150each and earning interest at 5% per year compounded monthly. Round to the nearest cent. c. True or False: The Annuities we deal with in this section are: Certain, Ordinary, and complex.
5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. An annuity that pays $500 at the beginning of every six months An annuity that pays $1,000 at the end of each year An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year You bought an annuity selling at $2,867.74 today that promises to make equal payments at the beginning of each year for the next twelve years (N). If the annuity's appropriate interest rate (1) remains at 9.50% during this time, then the value of the annual annuity payment (PMT) is $375.00 You just won the lottery. Congratulations! The jackpot is $35,000,000, paid in twelve equal annual payments. The first payment on the…
The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. O An annuity that pays $500 at the end of every six months An annuity that pays $500 at the beginning of every six months An annuity that pays $1,000 at the end of each year. An annuity that pays $1,000 at the beginning of each year An ordinary annuity selling at $14,130.15 today promises to make equal payments at the end of each year for the next twelve years (N). If the annuity's appropriate interest rate (I) remains at 8.00% during this time, the annual annuity payment (PMT) will be You just won the lottery. Congratulations! The jackpot is $85,000,000, paid in twelve equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won…
Annuity Present Value Inputs Payment $80 Discount Rate/Period 6% Number of Periods Present Value using a Time Line Period 1 2 4 Cash Flows 80 80 80 80 80 Present Value of Each Cash Flow 75.4717 71.19972 67.16954 63.36749 59.78065 Present Value Annuity Present Value using the Formula Present Value Annuity Present Value using the PV Function Present Value
Q. No. 02: Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities.$300 per year for 10 years at 10%$100 per year for 5 years at 5%$300 per year for 5 years at 0%Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.
What is the present value of an ordinary annuity that pays $1,000 per year for 4 years, assuming the annual discount rate is 7 percent? a. $3,051.58 b. $762.90 c. $3,624.32 d. $3,738.32 e. $3,387.21
6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2e 3e 4e 21e 24 22 23 $1,600- $1,500- $1,400 $1,300- $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits.e a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?e b. Without prejudice to your answer in part a, suppose that your required annual rate of return is 15%, what equal annual (beginning-of-year) payments over the twenty-four year period would be equivalent to the cash flow stream depicted above?
1)An asset promises to pay $60 in each of the next three years. Assume the rate of discount is 5% for each of the years. a) Calculate its price the “long” way b) Calculate its price using the annuity formula. 2) For the annuity in #1, what happens to it price if the rate of discount increase to 6%? 3) For the annuity in #2 what happens to it price if: a) its maturity is raised to four years? b) it never matures (a “perpetuity”)?

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