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Use the Present Value of $1 table to determine the present value of $1 received one year from now. Assume an 8% interest rate. Use
Use the Present Value of $1 table to determine the present value of $1 received one year from now. Assume an 8% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years. Round to three decimal places. (Click the icon to view Present Value of $1 table.) Read the requirements. (...) Requirement 1. What is the total present value of the cash flows received over the five-year period? Calculate the total present value of $1 received each year. (Round to three decimal places, X.XXX.) Present Value One year from now Two years from now Three years from now Four years from now Five years from now Total present value Requirement 2. Could you characterize this stream of cash flows as an annuity? Why or why not? The stream of cash flows an annuity because it is a stream of cash payments made at time intervals. Requirement 3. Use the Present Value of Ordinary Annuity of $1 table to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1. (Round to three decimal places, X.XXX.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) The present value of an annuity of $1 received each year for five years, at 8% per year is The sum of the present values in Requirement 1 Requirement 4. Explain your findings. the present value calculated with the Present Value of Ordinary Annuity of $1 table. Present Value of $1 Periods 1% 2% 3% Period 1 0.990 0.980 0.971 Period 2 0.980 0.961 0.943 0.925 0.907 Period 3 0.971 0.942 0.915 0.889 4% 0.962 0.952 5% 6% 0.943 0.890 7% 8% 0.935 0.926 0.873 0.857 0.864 0.840 0.816 0.794 Period 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 Period 5 Period 6 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.942 0.888 0.837 0.790 0.746 0.705 Period 7 0.933 0.871 0.813 0.760 0.711 0.665 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 Period 9 0.914 0.837 0.766 0.703 0.645 0.592 Period 10 0.905 0.820 0.744 0.676 0.614 0.558 Period 11 Period 12 0.887 0.788 0.701 Period 13 0.879 0.773 0.681 Period 14 0.870 0.758 0.661 Period 15 0.861 0.743 0.642 0.896 0.804 0.722 0.650 0.585 0.527 0.625 0.557 0.475 0.497 0.444 0.601 0.530 0.469 0.415 0.429 0.397 0.368 0.577 0.505 0.442 0.388 0.340 0.555 0.481 0.417 0.362 0.315 9% 10% 12% 14% 15% 16% 18% 20% 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.666 0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.623 0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.582 0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.544 0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.508 0.463 0.422 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.078 0.065 Period 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.163 Period 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 Period 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 Period 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 Period 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.146 0.130 0.116 0.104 0.123 0.107 0.093 0.071 0.054 0.108 0.093 0.080 0.060 0.045 0.095 0.081 0.069 0.051 0.038 0.083 0.070 0.060 0.043 0.031 0.073 0.061 0.051 0.037 0.026 Period 21 0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.093 0.064 Period 22 0.803 0.647 0.522 0.422 0.342 0.278 0.226 0.184 0.150 0.123 Period 23 0.795 0.634 0.507 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.074 Period 24 0.788 0.622 0.492 0.390 0.310 0.247 0.197 0.158 Period 25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.126 0.102 0.066 0.059 0.053 0.044 0.031 0.022 0.083 0.056 0.046 0.038 0.026 0.018 0.049 0.043 0.038 0.040 0.033 0.022 0.015 0.035 0.028 0.019 0.013 0.030 0.024 0.016 0.010 Use the Present Value of $1 table to determine the present value of $1 received one year from now. Assume an 8% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for (Click the icon to view Present Value of $1 table.) a total of five years. Round to three decimal places. Read the requirements. Calculate the total present value of $1 received each year. (Round to three decimal places, X.XXX.) Present Value One year from now Two years from now Three years from now Four years from now Five years from now Total present value Requirement 2. Could you characterize this stream of cash flows as an annuity? Why or why not? The stream of cash flows an annuity because it is a stream of cash payments made at time intervals. Requirement 3. Use the Present Value of Ordinary Annuity of $1 table to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1. (Round to three decimal places, X.XXX.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) The present value of an annuity of $1 received each year for five years, at 8% per year is The sum of the present values in Requirement 1 Requirement 4. Explain your findings. This exercise shows how Annuity PV factors the present value calculated with the Present Value of Ordinary Annuity of $1 table. of the PV factors found in the Present Value of $1 tables
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