Using the appropriate present value table and assuming a 12

Using the appropriate present value table and assuming a 12% annual interest rate, determine the present value on December 31, 2018, of a five-period annual annuity of $7,100 under each of the following situations: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1.The first payment is received on December 31, 2019, and interest is compounded annually. 2.The first payment is received on December 31, 2018, and interest is compounded annually. 3.The first payment is received on December 31, 2019, and interest is compounded quarterly.

Solution

Answer 1.

Annual Payment = $7,100
Annual Interest Rate = 12%
Number of Payments = 5

Present Value = $7,100 * PVA of $1 (12%, 5)
Present Value = $7,100 * 3.6048
Present Value = $25,594.08

Answer 2.

Annual Payment = $7,100
Annual Interest Rate = 12%
Number of Payments = 5

Present Value = $7,100 * PVAD of $1 (12%, 5)
Present Value = $7,100 * 4.0373
Present Value = $28,664.83

Answer 3.

Annual Payment = $7,100
Annual Interest Rate = 12%
Quarterly Interest Rate = 3%
Number of Payments = 5

Present Value = $7,100*PV of $1(3%, 4) + $7,100*PV of $1(3%, 8) + $7,100*PV of $1(3%, 12) + $7,100*PV of $1(3%, 16) + $7,100*PV of $1(3%, 20)
Present Value = $7,100*0.8885 + $7,100*0.7894 + $7,100*0.7014 + $7,100*0.6232 + $7,100*0.5537
Present Value = $25,249.02