Present Value of an Ordinary Annuity

An office equipment representative has a machine for sale or lease. If you buy the machine, the cost is $7,596. If you lease the machine, you will have to sign a noncancelable lease and make 5 payments of $2,000 each. The first payment will be paid on the first day of the lease. At the time of the last payment, you will receive title to the machine. The present value of an ordinary annuity of $1 is as follows:

	Present Value of $1 Discounted at
Number of Periods	10%	20%	16%
1	0.909	0.893	0.862
2	1.736	1.690	1.605
3	2.487	2.402	2.246
4	3.170	3.037	2.798
5	3.791	3.605	3.274

The interest rate implicit in this lease is approximately:

a.12%

b.Between 10% and 12%

c.10%

d.16%

rdinary Annuity and Annuity Due

An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for 8 periods. He has only one present value table, which shows the present value of an annuity of $1 payable at the end of each period. To compute the present value factor he needs, the accountant would use the present value factor in the 10% column for:

a.7 periods and add 1

b.8 periods

c.9 periods and subtract 1

d.7 periods