Homework help needed

Accounting
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For each of the following cases, calculate the present value of annuity, assuming the annuity cash flows occur at the end of each year. #1- Annuity/ $33,000/ Interest rate/18%/ 4 years? #2- Annuity/ $18,000/ Interest rate/ 9%/ 12 years? Round to the nearest cent

Jun 22nd, 2015

Thank you for the opportunity to help you with your question!

We use the following formula:  PV = (C/i)*(1 - (1+i)^ -n)

Where:  PV is the present value of the annuity, C is the cash flow of the annuity, i is the interest rate in decimal form, and n is the number of periods (number of years).

So for part A we have:   C = $33,000 , i = 18% = 18/100 = 0.18 , n = 4.

PV = (C/i)*(1 - (1+i)^ -n)  -------> PV = (33,000/0.18)*(1 - (1+0.18)^ -4) = (183333.333333)*(1 - (1.18)^ -4 )

PV = (183333.333333)*(1 - 0.51578888) = (183333.333333)*(0.48421112) = 88772.038 = $88772.0

So for part B we have: C = $18,000 , i = 9% = 9/100 = 0.09 , n = 12

PV = (C/i)*(1 - (1+i)^ -n)  -------> PV = (18,000/0.09)*(1 - (1+0.09)^ -12) = (200000)*(1 - (1.09)^ -12 )

PV = (200000)*(1 - 0.355535) = (200000)*(0.644465) = 128893 = $128893.0

Please let me know if you have any doubt or question.

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jun 22nd, 2015

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