Present Value of an Annuity Determine the present value of $170,000 to be received at the end of each of four years, using an interest rate of 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 Exhibit 5 Present Value of $1 at Compound Interest Periods 4% 472% 5% 572% 6% 672% 7% 10% 11% 12% 13% 1 0.96154 0.956940 0.95238 0.94787 0.94340 0.93897 0.93458 0.90909 0.90090 0.89286 0.88496 2 0.92456 0.915730 0.90703 0.89845 0.89000 0.88166 0.87344 0.82645 0.81162 0.79719 0.78315 3 0.88900 0.876300 0.86384 0.85161 0.83962 0.82785 0.81630 0.75131 0.73119 0.71178 0.69305 4 0.85480 0.838560 0.82270 0.80722 0.79209 0.77732 0.76290 0.68301 0.65873 0.63552 0.61332 5 0.82193 0.802450 0.78353 0.76513 0.74726 0.72988 0.71299 0.62092 0.59345 0.56743 0.54276 6 0.79031 0.767900 0.74622 0.72525 0.70496 0.68533 0.66634 0.56447 0.53464 0.50663 0.48032 7 0.75992 0.734830 0.71068 0.68744 0.66506 0.64351 0.62275 0.51316 0.48166 0.45235 0.42506 8 0.73069 0.703190 0.67684 0.65160 0.62741 0.60423 0.58201 0.46651 0.43393 0.40388 0.37616 9 0.70259 0.672900 0.64461 0.61763 0.59190 0.56735 0.54393 0.42410 0.39092 0.36061 0.33288 10 0.67556 0.643930 0.61391 0.58543 0.55839 0.53273 0.50835 0.38554 0.35218 0.32197 0.29459 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 $170,000 cash receipts less than the $680,000 to be received in the future? The present value is less due to over the 4 years. deflation inflation the compounding of interest Exhibit 7 Present Value of an Annuity of $1 at Compound Interest Periods 4% 472% 5% 572% 6% 672% 7% 10% 11% 12% 13% 1 0.96154 0.95694 0.95238 0.94787 0.94340 0.93897 0.93458 0.90909 0.90090 0.89286 0.88496 2 1.88609 1.87267 1.85941 1.84632 1.83339 1.82063 1.80802 1.73554 1.71252 1.69005 1.66810 3 2.77509 2.74896 2.72325 2.69793 2.67301 2.64848 2.62432 2.48685 2.44371 2.40183 2.36115 4 3.62990 3.58753 3.54595 3.50515 3.46511 3.42580 3.38721 3.16987 3.10245 3.03735 2.97447 5 4.45182 4.38998 4.32948 4.27028 4.21236 4.15568 4.10020 3.79079 3.69590 3.60478 3.51723 6 5.24214 5.15787 5.07569 4.99553 4.91732 4.84101 4.76654 4.35526 4.23054 4.11141 3.99755 7 6.00205 5.89270 5.78637 5.68297 5.58238 5.48452 5.38929 4.86842 4.71220 4.56376 4.42261 8 6.73274 6.59589 6.46321 6.33457 6.20979 6.08875 5.97130 5.33493 5.14612 4.96764 4.79677 9 7.43533 7.26879 7.10782 6.95220 6.80169 6.65610 6.51523 5.75902 5.53705 5.32825 5.13166 10 8.11090 7.91272 7.72173 7.53763 7.36009 7.18883 7.02358 6.14457 5.88923 5.65022 5.42624