Homework Answers
2. The correct answer is option b. (1 - Present value factor) / r
Where the present value factor = 1/(1 + r)^n
3. The correct answer is option d.
Perpetuity payments never cease. The number of payments continues forever in perpetuity whereas the number of payments is limited in an annuity.
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2. Which one of the following is the annuity present value factor? a. (1 + Present...
The quantity (1+r)t is Select one: a. the future value interest factor. b. the present value...
The quantity (1+r)t is Select one: a. the future value interest factor. b. the present value interest factor. c. the discount factor. d. the present value annuity factor. e. both b and c.
7. Present value of annuities and annuity payments The present value of an annuity is the...
7. 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 end of every six months An annuity that pays $1,000 at the end of each year...
What is an annuity? Select one: a. present worth of a series of equal payments. b....
What is an annuity? Select one: a. present worth of a series of equal payments. b. a single payment. c. a series of payments that changes by a constant amount from one period to the next. d. a series of equal payments over a sequence of equal periods. e. a series of payments that changes by the same proportion from one period to the next. Question 2 The present worth factor Select one: a. gives the future value equivalent to...
PART 1: The present value of an ordinary annuity is $13,000. What would be the present value of this annuity if the paym...
PART 1: The present value of an ordinary annuity is $13,000. What would be the present value of this annuity if the payments were to be received at the beginning of each period? Assume the interest rate is 18%. A. $16,500 B. $13,636 C. $15,340 D. Insufficient information to determine – we need to know the specific cash flows and the timing PART 2: If you were offered a stream of cash flows of $1500 per year forever and the...
Present Value of 1 Factor Present Value of an Annuity of 1 Factor Period 1/2 Yr...
Present Value of 1 Factor Present Value of an Annuity of 1 Factor Period 1/2 Yr Full-Yr 1/2 Yr Full-Yr 0.9449 0.8929 0.9449 0.8929 0.8929 0.7972 1.8378 1.6901 0.8437 0.7118 2.6814 2.4018 0.7972 0.6355 3.4786 3.0373 0.7533 0.5674 4.2319 3.6048 0.7118 0.5066 4.9437 4.1114 Assumption: Required annual effective rate (EPR) of 2 4 6 return is 12%. If an investment pays you $17,000 at the end of each year for 3 years, what is its present value? O $44,471 O...
Question 2 Which of the following will increase the present value of an annuity, all else...
Question 2 Which of the following will increase the present value of an annuity, all else held constant? 1. Increase in the number of payments II. Increase in the interest rate III. Decrease in the interest rate IV. Decrease in the payment amount o I and III only oland Il only o 1, 11, and IV only o 1. III. and IV only o I and IV only
13. Choose the Choose the option that correctly ranks the following investments from highest present value...
13. Choose the Choose the option that correctly ranks the following investments from highest present value to lo All options have the same interest rate. ent value to lowest present value. 1. A perpetuity with an annual cash flow of $100. II. An annuity due with 10 annual payments of $100. III. An ordinary annuity with 10 annual payments of $100. A. B. C. D. E. II, I, III I, II, III I, III, 11 III, II, 1
Present Value of an Annuity Determine the present value of $300,000 to be received at the...
Present Value of an Annuity Determine the present value of $300,000 to be received at the end of each of four years, using an interest rate of 10 %, compounded annually, as follows a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year Second Year Third Year Fourth Year Total present value b. By using the present value of an annuity of $1 table in Exhibit 7. Round...
Question 2 (0.2 points) Which of the following will increase the present value of an annuity,...
Question 2 (0.2 points) Which of the following will increase the present value of an annuity, all else held constant? I. Increase in the number of payments II. Decrease in the interest rate III. Increase in the interest rate IV. Decrease in the payment amount 1) I, III, and IV only 2) I, II, and IV only O3) II and IV only 4) I and III only 5) I and II only
Present Value of an Annuity Determine the present value of $130,000 to be received at the...
Present Value of an Annuity Determine the present value of $130,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, as follows: a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year $ Second Year $ Third Year $ Fourth Year $ Total present value $ b. By using the present value of an annuity of $1 table...
Present Value of 1 Factor Present Value of an Annuity of 1 Factor Period 1/2 Yr Full-Yr 1/2 Yr Full-Yr 0.9449 0.8929 0.9449 0.8929 0.8929 0.7972 1.8378 1.6901 0.8437 0.7118 2.6814 2.4018 0.7972 0.6355 3.4786 3.0373 0.7533 0.5674 4.2319 3.6048 0.7118 0.5066 4.9437 4.1114 Assumption: Required annual effective rate (EPR) of 2 4 6 return is 12%. If an investment pays you $17,000 at the end of each year for 3 years, what is its present value? O $44,471 O...
Question 2 Which of the following will increase the present value of an annuity, all else held constant? 1. Increase in the number of payments II. Increase in the interest rate III. Decrease in the interest rate IV. Decrease in the payment amount o I and III only oland Il only o 1, 11, and IV only o 1. III. and IV only o I and IV only
13. Choose the Choose the option that correctly ranks the following investments from highest present value to lo All options have the same interest rate. ent value to lowest present value. 1. A perpetuity with an annual cash flow of $100. II. An annuity due with 10 annual payments of $100. III. An ordinary annuity with 10 annual payments of $100. A. B. C. D. E. II, I, III I, II, III I, III, 11 III, II, 1
Present Value of an Annuity Determine the present value of $300,000 to be received at the end of each of four years, using an interest rate of 10 %, compounded annually, as follows a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year Second Year Third Year Fourth Year Total present value b. By using the present value of an annuity of $1 table in Exhibit 7. Round...
Question 2 (0.2 points) Which of the following will increase the present value of an annuity, all else held constant? I. Increase in the number of payments II. Decrease in the interest rate III. Increase in the interest rate IV. Decrease in the payment amount 1) I, III, and IV only 2) I, II, and IV only O3) II and IV only 4) I and III only 5) I and II only
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