Please complete the following questions - Homework.

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 annuityordinary or annuity dueis preferable? Explain why.

Tutor Answer

School: New York University



Course Number
Submission Date
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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