Use the Present Value of $1 table to determine the present value of $1 received one year from now. Assume a 14% 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.

Present Value of $1
Periods	1%	2%	3%	4%	5%	6%	8%	10%	12%	14%	16%	18%	20%
Period 1	0.990	0.980	0.971	0.962	0.952	0.943	0.926	0.909	0.893	0.877	0.862	0.847	0.833
Period 2	0.980	0.961	0.943	0.925	0.907	0.890	0.857	0.826	0.797	0.769	0.743	0.718	0.694
Period 3	0.971	0.942	0.915	0.889	0.864	0.840	0.794	0.751	0.712	0.675	0.641	0.609	0.579
Period 4	0.961	0.924	0.888	0.855	0.823	0.792	0.735	0.683	0.636	0.592	0.552	0.516	0.482
Period 5	0.951	0.906	0.863	0.822	0.784	0.747	0.681	0.621	0.567	0.519	0.476	0.437	0.402
Period 6	0.942	0.888	0.837	0.790	0.746	0.705	0.630	0.564	0.507	0.456	0.410	0.370	0.335
Period 7	0.933	0.871	0.813	0.760	0.711	0.665	0.583	0.513	0.452	0.400	0.354	0.314	0.279
Period 8	0.923	0.853	0.789	0.731	0.677	0.627	0.540	0.467	0.404	0.351	0.305	0.266	0.233
Period 9	0.914	0.837	0.766	0.703	0.645	0.592	0.500	0.424	0.361	0.308	0.263	0.225	0.194
Period 10	0.905	0.820	0.744	0.676	0.614	0.558	0.463	0.386	0.322	0.270	0.227	0.191	0.162
Period 11	0.896	0.804	0.722	0.650	0.585	0.527	0.429	0.350	0.287	0.237	0.195	0.162	0.135
Period 12	0.887	0.788	0.701	0.625	0.557	0.497	0.397	0.319	0.257	0.208	0.168	0.137	0.112
Period 13	0.879	0.773	0.681	0.601	0.530	0.469	0.368	0.290	0.229	0.182	0.145	0.116	0.093
Period 14	0.870	0.758	0.661	0.577	0.505	0.442	0.340	0.263	0.205	0.160	0.125	0.099	0.078
Period 15	0.861	0.743	0.642	0.555	0.481	0.417	0.315	0.239	0.183	0.140	0.108	0.084	0.065
Period 20	0.820	0.673	0.554	0.456	0.377	0.312	0.215	0.149	0.104	0.073	0.051	0.037	0.026
Period 25	0.780	0.610	0.478	0.375	0.295	0.233	0.146	0.092	0.059	0.038	0.024	0.016	0.010
Period 30	0.742	0.552	0.412	0.308	0.231	0.174	0.099	0.057	0.033	0.020	0.012	0.007	0.004
Period 40	0.672	0.453	0.307	0.208	0.142	0.097	0.046	0.022	0.011	0.005	0.003	0.001	0.001

a.What is the total present value of the cash flows received over the five-year period? (Round all amounts to three decimal places.)

Year	Present value
Year 1
Year 2
Year 3
Year 4
Year 5
Total present value

b. Could you characterize this stream of cash flows as an annuity? Why, or why not?

This stream of cash flows

does

does not

fit the definition of an annuity because the cash flows

are equal and occur at equal time intervals.

are not equal and do not occur at equal time intervals.

Part 3

c. Use the Present Value of Annuity of $1 table to determine the present value of the same stream of cash flows. Compare your results to your answer to Part A. (Round your answer to three decimal places.)

The present value of an annuity of $1 received each year for five years, at 14% per year is

.

Part 4

Compare your results to your answer to Part A.

The sum of the present values in part "a"

doesn't equal

equals (except for a possible slight rounding error)

the present value calculated with the annuity table.

Part 5

d. Explain your findings.

This exercise shows how Annuity PV factors

are not the sums

are the sums

of the PV factors found in the Present Value of $1 tables.