##### Homework help needed

label Accounting
account_circle Unassigned
schedule 1 Day
account_balance_wallet \$5

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

Oct 21st, 2017

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.

Jun 22nd, 2015

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Oct 21st, 2017
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Oct 21st, 2017
Oct 21st, 2017
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