4. P5-20: Present value of an annuity:

Case Amount of annuity Interest rate Period (years)

A $12,000 7% 3

B 55,000 12 15

C 700 20 9

D 140,000 5 7

E 22,500 10 5

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.

Case Amount of annuity Interest rate Period (years)

A $12,000 7% 3

B 55,000 12 15

C 700 20 9

D 140,000 5 7

E 22,500 10 5

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.

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