Question

Assume you want to invest a sum of money (hint: the present value) that you can use to withdraw $5 per year for the next 10 years (at the end of each year). Depending on the interest rates provided below, how much would you need to invest today? Round factors to four decimal places and present values to two decimal places. Use rounded PV values to calculate all totals.

Using the Present Value of an Ordinary Annuity Table, with N = 10
Interest Rate	Factor	Present Value
0%
1%
2%
3%
4%
5%
10%
20%

Using the Present Value of $1 Table for 5% Interest
N	Yr.1	Yr.2	Yr.3	Yr.4	Yr.5	Yr.6	Yr.7	Yr.8	Yr.9	Yr.10	Total
Interest rate	5%	5%	5%	5%	5%	5%	5%	5%	5%	5%
Factor
Present Value

Using the Present Value of $1 Table for 10% Interest
N	Yr.1	Yr.2	Yr.3	Yr.4	Yr.5	Yr.6	Yr.7	Yr.8	Yr.9	Yr.10	Total
Interest rate	10%	10%	10%	10%	10%	10%	10%	10%	10%	10%
Factor
Present Value

Using the Present Value of $1 Table for 20% Interest
N	Yr.1	Yr.2	Yr.3	Yr.4	Yr.5	Yr.6	Yr.7	Yr.8	Yr.9	Yr.10	Total
Interest rate	20%	20%	20%	20%	20%	20%	20%	20%	20%	20%
Factor
Present Value

Answer 1

Using the Present Value of an Ordinary Annuity Table, with N = 10																	Table values
Interest Rate	Factor	Present Value												0%	1%	2%	3%	4%	5%	10%	20%
0%	10	50.00	(5*10)										1	1	0.9901	0.9804	0.9709	0.9615	0.9524	0.9091	0.8333
1%	9.4713	47.36	(5*9.4713)										2	1	0.9803	0.9612	0.9426	0.9246	0.907	0.8264	0.6944
2%	8.9826	44.91	(5*8.9826)										3	1	0.9706	0.9423	0.9151	0.889	0.8638	0.7513	0.5787
3%	8.5302	42.65	(5*8.5302)										4	1	0.961	0.9238	0.8885	0.8548	0.8227	0.683	0.4823
4%	8.1109	40.55	(5*8.1109)										5	1	0.9515	0.9057	0.8626	0.8219	0.7835	0.6209	0.4019
5%	7.7216	38.61	(5*7.7216)										6	1	0.942	0.888	0.8375	0.7903	0.7462	0.5645	0.3349
10%	6.1445	30.72	(5*6.1445)										7	1	0.9327	0.8706	0.8131	0.7599	0.7107	0.5132	0.2791
20%	4.1925	20.96	(5*4.1925)										8	1	0.9235	0.8535	0.7894	0.7307	0.6768	0.4665	0.2326
Using the Present Value of $1 Table for 5% Interest													9	1	0.9143	0.8368	0.7664	0.7026	0.6446	0.4241	0.1938
N	Yr.1	Yr.2	Yr.3	Yr.4	Yr.5	Yr.6	Yr.7	Yr.8	Yr.9	Yr.10	Total		10	1	0.9053	0.8203	0.7441	0.6756	0.6139	0.3855	0.1615
Interest rate	5%	5%	5%	5%	5%	5%	5%	5%	5%	5%				10	9.4713	8.9826	8.5302	8.1109	7.7216	6.1445	4.1925
Factor	0.9524	0.9070	0.8638	0.8227	0.7835	0.7462	0.7107	0.6768	0.6446	0.6139
Present Value	4.76	4.54	4.32	4.11	3.92	3.73	3.55	3.38	3.22	3.07	38.61
	(0.9524*5)	(0.907*5)	(0.8638*5)	(0.8227*5)	(0.7835*5)	(0.7462*5)	(0.7107*5)	(0.6768*5)	(0.6446*5)	(0.6139*5)
Using the Present Value of $1 Table for 10% Interest
N	Yr.1	Yr.2	Yr.3	Yr.4	Yr.5	Yr.6	Yr.7	Yr.8	Yr.9	Yr.10	Total
Interest rate	10%	10%	10%	10%	10%	10%	10%	10%	10%	10%
Factor	0.9091	0.8264	0.7513	0.683	0.6209	0.5645	0.5132	0.4665	0.4241	0.3855
Present Value	4.55	4.13	3.76	3.42	3.10	2.82	2.57	2.33	2.12	1.93	30.72
	(0.9091*5)	(0.8264*5)	(0.7513*5)	(0.683*5)	(0.6209*5)	(0.5645*5)	(0.5132*5)	(0.4665*5)	(0.4241*5)	(0.3855*5)
Using the Present Value of $1 Table for 20% Interest
N	Yr.1	Yr.2	Yr.3	Yr.4	Yr.5	Yr.6	Yr.7	Yr.8	Yr.9	Yr.10	Total
Interest rate	20%	20%	20%	20%	20%	20%	20%	20%	20%	20%
Factor	0.8333	0.6944	0.5787	0.4823	0.4019	0.3349	0.2791	0.2326	0.1938	0.1615
Present Value	4.17	3.47	2.89	2.41	2.01	1.67	1.40	1.16	0.97	0.81	20.96
	(0.8333*5)	(0.6944*5)	(0.5787*5)	(0.4823*5)	(0.4019*5)	(0.3349*5)	(0.2791*5)	(0.2326*5)	(0.1938*5)	(0.1615*5)

Please give your valuable feedback.