E-4

Jack Hammer invests in a stock that will pay dividends of $3.04 at the end of the first year; $3.38 at the end of the second year; and $3.72 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $54.

What is the present value of all future benefits if a discount rate of 11 percent is applied? UseAppendix Bfor an approximate answer, but calculate your final answer using the formula and financial calculator methods.(Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Dividend 3.04, 3.38, 3.72, 54.00

Present Value...

Total=

E-5

Annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due).

What is the future value of a 10-year annuity of $10,000 per period where payments come at the beginning of each period? The interest rate is 8 percent. UseAppendix Cfor an approximate answer, but calculate your final answer using the formula and financial calculator methods. To find the future value of an annuity due when using the Appendix tables, add 1 tonand subtract 1 from the tabular value. For example, to find the future value of a $100 payment at the beginning of each period for five periods at 10 percent, go to Appendix C forn= 6 andi= 10 percent. Look up the value of 7.716 and subtract 1 from it for an answer of 6.716 or $671.60 ($100 6.716).(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Future value=