Relationship between the PV tables (Learning Objective 3)

Use the Present Value of $1 table (Appendix 9A, Table A) to determine the present value of $1 received one year from now. Assume a 14% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years.

a. What is the total present value of the cash flows received over the five-year period?

b. Could you characterize this stream of cash flows as an annuity? Why or why not?

c. Use the Present Value of Annuity of $1 table (Appendix 9A, Table B) to deter¬ mine the present value of the same stream of cash flows. Compare your results to your answer in Part a.

d. Explain your findings.