Answered: Suppose you are going to receive…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Suppose you are going to receive $20,000 per year for
five years. The appropriate interest rate is 7 percent.
a. What is the present value of the payments if they are in the form of an ordinary
annuity? What is the present value if the payments are an annuity due?
b. Suppose you plan to invest the payments for five years. What is the future value
if the payments are an ordinary annuity? What if the payments are an annuity
due?
c. Which has the highest present value, the ordinary annuity or annuity due? Which
has the highest future value? Will this always be true?

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