Question

a-1. Annual payment of $1,025 for 11 years at 4% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-2. Annual payment of $825 for 16 years at 4% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-3. Which option would you prefer? b-1. Annual payment of $1,025 for 11 years at 16% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-2. Annual payment of $825 for 16 years at 16% interest. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

a-1//   8,979.49

a-2//    9613.14

b-1//    5,154.36

b-2//   4,676.51

Explanation:

We will calculate each present value using the formula for present value of an ordinary annuity:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

a-1

C 1,025

time 11

rate 0.04

$1025 \times \frac{1-(1+0.04)^{-11} }{0.04} = PV$

PV $8,979.4886

a-2

C 825

time 16

rate 0.04

$825 \times \frac{1-(1+0.04)^{-16} }{0.04} = PV$

PV $9,613.1439

b-1

C 1,025

time 11

rate 0.16

$1025 \times \frac{1-(1+0.16)^{-11} }{0.16} = PV$

PV $5,154.3605

b-2

C 825

time 16

rate 0.16

$825 \times \frac{1-(1+0.16)^{-16} }{0.16} = PV$

PV $4,676.5098