Question

Calculate the present value of the following: a-1. Annual payment of $1,125 for 12 years at 3% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Presents 789.05 value a-2. Annual payment of $925 for 17 years at 3% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ 559.64 a-3. Which option would you prefer? $1,125 a year for 12 years $925 a year for 17 years b-1. Annual payment of $1,125 for 12 years at 12% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present Present value b-2. Annual payment of $925 for 17 years at 12% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value b-3. Which option would you prefer? $1,125 a year for 12 years $925 a year for 17 years

Answer 1

a-1. Information provided:

Annual payment= $1,125

Time= 12 years

Interest rate= 3%

The present value is calculated by entering the below in a financial calculator:

PMT= -1,125

N= 12

I/Y= 3

Press the CPT key and PV to compute the present value.

The value obtained is 11,198.25.

Therefore, the present value is $11,198.25.

a-2.Information provided:

Annual payment= $925

Time= 17 years

Interest rate= 3%

The present value is calculated by entering the below in a financial calculator:

PMT= -925

N= 17

I/Y= 3

Press the CPT key and PV to compute the present value.

The value obtained is 12,178.66.

Therefore, the present value is $12,178.66.

a-3.I would prefer $925 a year for 17 years since it has a higher present value.

b-1. Information provided:

Annual payment= $1,125

Time= 12 years

Interest rate= 12%

The present value is calculated by entering the below in a financial calculator:

PMT= -1,125

N= 12

I/Y= 12

Press the CPT key and PV to compute the present value.

The value obtained is 6,968.67.

Therefore, the present value is $6,968.67.

b-2. .Information provided:

Annual payment= $925

Time= 17 years

Interest rate= 12%

The present value is calculated by entering the below in a financial calculator:

PMT= -925

N= 17

I/Y= 12

Press the CPT key and PV to compute the present value.

The value obtained is 6,585.66.

Therefore, the present value is $6,585.66.

b-3. I would prefer $1,125 a year for 12 years since it has a higher present value.

In case of any query, kindly comment on the solution.