Question

Attempts Average: 1 3. Present value of annuities You got into a car accident and settled out of court for equal payments of $1,500 at the end of each year for the next eight years. If the annual interest rate stays constant at 5%, what is the value of these payments in today's dollars? (Note: Round your answer to the nearest whole dollar.) O $8,241 O $10,180 $12,119 O $9,695 Vou found out that now you are going to receive payments of $7.500 for the next 14 years. You will receive these payments at the beginning of each year. The annual interest rate will remain constant at 14%. What is the present value of these payments? (Note: Round your answer to the nearest whole dolar) $69.279 $41.054 $51.310 $45.016

Answer 1

Q1).

It's an ordinary annuity with

A = $1500

t = 8 years

r = 5%

To calculate PV

PV = A*(1-(1+r)^(-n))/r = 1500*(1-1.05^(-8))/.05 = $9695

Q2

It's an annuity due with

A = $7500

t = 14 years

r = 14%

To calculate PV

PV = A*(1+r)*(1-(1+r)^(-n))/r = 7500*1.14*(1-1.14^(-14))/.14 = $51318