Suppose you are going to receive $7,800 per year for five years. The appropriate discount rate is

Question:

Suppose you are going to receive $7,800 per year for five years. The appropriate discount rate is 7.5 percent.
a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due?
b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the
payments are an annuity due?
c. Which has the higher present value, the ordinary annuity or annuity due? Which has the higher future value? Will this always be true?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...

Fantastic news! We've Found the answer you've been seeking!