Chapter 5, Solutions Cornett, Adair, and Nofsinger

Use equation 5-3:

PV = $2,000 ÷ (1 + 0.08)1 + $2,500 ÷ (1 + 0.08)4 = $1,851.85 + $1,837.57 = $3,689.43

LG45-7 Present Value of an Annuity What’s the present value of a $500 annuity payment over 5 years if interest rates are 9 percent?

Use equation 5-4:

LG45-8 Present Value of an Annuity What’s the present value of a $700 annuity payment over 4 years if interest rates are 10 percent?

Use equation 5-4:

LG55-9 Present Value of a Perpetuity What’s the present value, when interest rates are 7.5 percent, of a $50 payment made every year forever?

Use equation 5-5:

LG55-10 Present Value of a Perpetuity What’s the present value, when interest rates are 8.5 percent, of a $75 payment made every year forever?

Use equation 5-5:

LG65-11 Present Value of an Annuity Due If the present value of an ordinary, 7-year annuity is $6,500 and interest rates are 8.5 percent, what’s the present value of the same annuity due?

Use equation 5-7:

PVA7 due = 6,500 × (1 +0.085) = $7,052.50

LG65-12 Present Value of an Annuity Due If the present value of an ordinary, 6-year annuity is $8,500 and interest rates are 9.5 percent, what’s the present value of the same annuity due?