Calculating Present and Future Values of Annuities
1. Q:3
Rate of interest = 6 % per annum
No of year = 12
P.V = $ 25000
P.V annuity formula:
P.V /Annuity factor = P
Present Value Annuity= [1-(1+r)-n/r]
Present Value Annuity Factor = 8.38385
P.V = P [1-(1+r)-n/r]
25000 = P[1-(1+0.06)-12/0.06]
P=25000 / 8.38385
P = 2982 Joe will withdraw every year for 12 years.
Q: 4
A)- $50,000 = R(FVIFA8%,10) = R(14.486)
R = $50,000/14.486 = $3,452
B)- $50,000 = R(FVIFA8%,10)(1 + 0.08) = R(15.645)
R = $50,000/15.645 = $3,196
Q:5
$1,000,000 = $1,000(1 + x%)100
(1 + x%)100 = $1,000,000/$1,000 = 1,000
Taking the square root of both sides of the above equation gives
(1 + x%)50 = (FVIFAx%, 50) = 31.623
Going to the FVIF table at the back of the book and looking across the row for n = 50, we
find that the interest factor for 7 percent is 29.457, while for 8 percent it is 46.901.
Therefore, the implicit interest rate is slightly more than 7 percent.
2. Q:6
$190,000 = R(PVIFA17%, 20) = R(5.628)
R = $190,000/5.628 = $33,760
Q:7
$14,300 = $3,000(PVIFA15% ,n)
(PVIFA15%,n) = $14,300/$3,000 = 4.767
Going to the PVIFA table at the back of the book and looking down the column for i = 15%,
we find that the discount factor for 8 years is 4.487, while the discount factor for 9 years is
4.772. Thus, it will take approximately 9 years of payments before the loan is retired.
Q: 8 Discount=
1
(1+𝑖) 𝑛
3. Q: 9
a. kp = Dp/P0: $8/$100 =8 percent
b. Solving for YTC by computer for the following equation
$100 = $8/(1 +YTC)1 + $8/(1 + YTC)2 + $8/(1 + YTC)3 + $8/(1 + YTC)4 + $118/(1 +
YTC)5
we get YTC = 9.64 percent. (If the students work with present-valuetables, they
should still be able to determine an approximation of the yield to call by making
use of a trialand-error procedure.)
Q:10
V = (I/2)(PVIFA7%, 30) +$1,000(PVIF7%, 30)
= $45(12.409) +$1,000(0.131)
= $558.41+$131 =$689.41