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4-17 Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost rate is (a) 4 percent, (b) 8 percent, and (c) 10 percent. WWhy does the PV decrease as the opportunity cost increases?

4-17 Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost rate is (a) 4 percent, (b) 8 percent, and (c) 10 percent. WWhy does the PV decrease as the opportunity cost increases?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Finance and Investment Problems** **4-17** Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost rate is (a) 4 percent, (b) 8 percent, and (c) 10 percent. Why does the PV decrease as the opportunity cost increases? **4-18** Ten years ago, Bruce invested $1,250. Today, the investment is worth $3,550. If interest is compounded annually, what annual rate of return did Bruce earn on his investment? **4-19** Tina owes $12,000 on her automobile loan, which has an interest rate equal to 8 percent compounded monthly. If Tina pays $526 at the end of each month, how long will it take her to repay the loan? **4-20** Mario wants to take a trip that costs $4,750, but currently, he only has $2,260 saved. If Mario invests this money at 7 percent compounded annually, how long will it take for his investment to grow to $4,750?
Transcribed Image Text:**Finance and Investment Problems** **4-17** Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost rate is (a) 4 percent, (b) 8 percent, and (c) 10 percent. Why does the PV decrease as the opportunity cost increases? **4-18** Ten years ago, Bruce invested $1,250. Today, the investment is worth $3,550. If interest is compounded annually, what annual rate of return did Bruce earn on his investment? **4-19** Tina owes $12,000 on her automobile loan, which has an interest rate equal to 8 percent compounded monthly. If Tina pays $526 at the end of each month, how long will it take her to repay the loan? **4-20** Mario wants to take a trip that costs $4,750, but currently, he only has $2,260 saved. If Mario invests this money at 7 percent compounded annually, how long will it take for his investment to grow to $4,750?
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