Using the time value of money Use the Present Value of $ 1 table (Appendix B, Table

Question:

Using the time value of money Use the Present Value of $ 1 table (Appendix B, Table B- 1) 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.

Requirements

1. What is the total present value of the cash flows received over the five- year period?

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

3. Use the Present Value of Annuity of $ 1 table (Appendix B, Table B-2) to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1.

4. Explain your findings.

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...