Question Content Area

Present Value of an Annuity

Determine the present value of $310,000 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 1$ table in Exhibit 8. Round to the nearest whole dollar.

First year	$fill in the blank 1
Second Year	fill in the blank 2
Third Year	fill in the blank 3
Fourth Year	fill in the blank 4
Total present value	$fill in the blank 5

b. By using the present value table in Exhibit 10. Round to the nearest whole dollar. $fill in the blank 6

c. Why is the present value of the four $310,000 cash receipts less than the $1,240,000 to be received in the future? The present value is less due to

inflationthe compounding of interestdeflation

over the 4 years.