Present Value of an Annuity Determine the present value of $340,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year 317,757 V Second Year 296,970 v Third Year 277,542 Fourth Year 259,383 x Total present value 1,151,651 b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar. 1,151,651 V c. Why is the present value of the four $340,000 cash receipts less than the $1,360,000 to be received in the future? The present value is less due to the compounding of interest over the 4 years.
Present Value of an Annuity Determine the present value of $340,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year 317,757 V Second Year 296,970 v Third Year 277,542 Fourth Year 259,383 x Total present value 1,151,651 b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar. 1,151,651 V c. Why is the present value of the four $340,000 cash receipts less than the $1,360,000 to be received in the future? The present value is less due to the compounding of interest over the 4 years.
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
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Homework: Chapter 11
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1. EX.11.03.ALGO
Present Value of an Annuity
Determine the present value of $340,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, as follows:
2. EX.11.04.ALGO
a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar.
3. EX.11.05.ALGO
First year
317,757 V
4. EX.11.08.ALGO
Second Year
296,970 V
Third Year
277,542 V
5. EX.11.09.ALGO
Fourth Year
259,383 x
6. EX.11.10.ALGO
Total present value
1,151,651 V
7. EX.11.14.ALGO
b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar.
1,151,651 V
8. PR.11.01A.BLANKSHEETA.
c. Why is the present value of the four $340,000 cash receipts less than the $1,360,000 to be received in the future?
The present value is less due to the compounding of interest v
over the 4 years.
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Review the time value of money concept. Recall that the time value of money concept recognizes that cash received today is worth more than the
same amount of cash to be received in the future.
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