Present Value of an Annuity

Determine the present value of $120,000 to be received at the end of each of four years, using an interest rate of 5.5%, compounded annually, as follows:

a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar.

First year$

Second Year

Third Year

Fourth Year

Total present value$

b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar. $

c. Why is the present value of the four $120,000 cash receipts less than the $480,000 to be received in the future? The present value is less due to over the 4 years.