Author Question: What is the present value today of an ordinary annuity cash flow of 3,000 per year for forty years ... (Read 123 times)

cmoore54 · **on:** Jul 10, 2018

What is the present value today of an ordinary annuity cash flow of 3,000 per year for forty years at an interest rate of 10.0 per year if the first cash flow is six years from today?

A) 120,000.00
B) 1,327,777.67
C) 45,138.89
D) 33,730.40

Question 2

Twelve years ago, you paid for the right to twelve 25,000 annual end-of-the-year cash flows. If discounting the cash flows at an annual rate of 8, what did you pay for these cash flows back then?

A) 474,428.16
B) 300,000.00
C) 203,474.11
D) 188,401.95

honnalora · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D) Although this problem is not directly addressed in the text, its intended effect is to reinforce the idea of present value. In this kind of problem, the student must find a present value in the future, and then discount that renamed future value back to the present value at time zero.
PV = PMT / (1 + r)n = 3,000 / (1.06)5 = 33,730.40.

Answer to Question 2

Answer: D
Explanation: D)
PV = PMT = 25,000 = 188,401.95.
MODE = END
INPUT 12 8 ? -25,000 0
KEY N I/Y PV PMT FV
CPT 188,401.95