Question

For each of the following situations involving annuities, solve for the unknown. Assume that interest is compounded annually and that all annuity amounts are received at the end of each period. (i = interest rate, and n=number of years) (FV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of S1 and PVAD of $) (Use appropriate factor(s) from the tables provided. Round your final answers to nearest whole dollar amount.) n Present Value Annuity Amounti 3.400 435,588 120,000 746.890 140.000 570 000 80.193 215.000 10%

Answer 1

Formula:

present value of annuity = annuity amount x PVAF

(1)

Present value = $3400 x 3.9927

= $13575

where,

PVAF(8%, 5) = 3.9927

(2)

PVAF(i, 4) = $435588/$120000 = 3.6299

in the present value of annuity table,

in the 4th row of period, 3.6299 factor is found in 4% interest column

therefore,

i = 4%

(3)

PVAF(10%, n) = $746890/$140000 = 5.3349

in the present value of annuity table,

in the column with 10% interest, 5.3349 factor is found in row with 8 period

therefore,

n = 8

(4)

PVAF(i, 9) = $570000/$80193 = 7.1078

in the present value of annuity table,

in the 9th row of period, 7.1078 factor is found in 5% interest column

therefore,

i = 5%

(5)

annuity amount = $215000/3.1699

= $67825

where,

PVAF(10%, 4) = 3.1699