Exercise 6-9
1.
Choose the option with the highest present value.
(1)
PV
=
$64,000
(2)
PV
=
$20,000
+
$8,000 (4.91732)
Present value of an ordinary annuity of $1: n=6, i=6% (from Table 4)
PV
=
$20,000
+
$39,339
=
$59,339
(3)
PV
=
$13,000 (4.91732)
=
$63,925
Alex should choose option (1).
2.
FVA
=
$200,000 (13.8164)
=
$2,763,280
Future value of an ordinary annuity of $1: n=10, i=7% (from Table 3)
Exercise 6-12
PV
=
$75,000 (.82645)
=
$61,984
=
Note/revenue
Present value of $1: n=2, i=10% (from Table 2)
Exercise 6-15
PVA
=
$10,000
x
4.35526=
$43,553
P
resent value of an ordinary annuity of $1: n=6, i=10% (from Table 4)
PV
=
$43,553
x
.82645=
$35,994
P
resent value of $1: n=2, i=10% (from Table 2)
Or alternatively:
From Table 4,
PVA factor, n=8, i=10%
=
5.33493
–
PVA factor, n=2, i=10%
=
1.73554
=
PV factor for deferred annuity
=
3.59939
PV
=
$10,000
x
3.59939
=
$35,994
1