# Please complete the following questions - Homework.

*label*Business Finance

*timer*Asked: Feb 9th, 2019

*account_balance_wallet*$15

### Question Description

Question 1 - Marian Kirk wishes to select the better of two 6-year annuities. Annuity 1 is an ordinary annuity of $1,970 per year for 6 years. Annuity 2 is an annuity due of $1,820 per year for 6 years.

a. Find the future value of both annuities at the end of year 6, assuming that Marian can earn(1)7% annual interest and (2)14% annual interest.

b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 6 for both the (1) 7% and (2) 14% interest rates..

c. Find the present value of both annuities, assuming that Marian can earn (1) 7%annual interest and (2) 14% annual interest.

d. Use your findings in part c to indicate which annuity has the greater present value for both the (1) 7% and (2) 14% interest rates.

e. Briefly compare, contrast, and explain any differences between your findings using the 7% and 14% interest rates in parts b and d.

Question 2 - Answer each of the following questions.

a. How much money would you have to invest today to accumulate $4,400 after 7 years if the rate of return on your investment is 6%?

b. What is the present value of $4,400 that you will receive after 7 years if the discount rate is 6%?

c. What is the most you would spend today for an investment that will pay $4,400 in 7 years if your opportunity cost is 6%?

d. Compare, contrast, and discuss your findings in part a through c.

Question 3 - Consider the following case.

Amount of Annuity - $37,000

Interest Rate - 11%

Period (Years) - 10

a. Calculate the present value of the annuity assuming that it is

(1) An ordinary annuity.

(2) An annuity due.

b. Compare your findings in parts a(1)and a (2).All else being identical, which type of annuity—ordinary or annuity due—is preferable? Explain why.

## Tutor Answer

Attached.

Surname1

Name

Professor

Course Number

Submission Date

Accounting

P= PMT ((1+r) n-1/r)

P- The future value of the annuity stream to be paid in the future

PMT- The amount of each annuity

r- Interest rate

n- The number of periods over which payments are made

Qn. 1

a) (i) Future value of an ordinary annuity

P= PMT ((1+r) n -1/r)

P= $1970((1+0.07)6-1/0.07)

P= $1970((1.5-1)/0.07)

P= $1970(0.5/0.07)

P= $14,071.43

(ii) Future value of a...

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