Compute the present value of a $150 cash flow for the following combinations of discount rates and times: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Compute the present value of a $150 cash flow for the following combinations of discount rates and times: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Present Value
a. r = 12%, t = 8 years	$
b. r = 12%, t = 16 years
c. r = 6%, t = 8 years
d. r = 6%, t = 16 years

Explanation:

a. $150/(1.12)8 = $60.58

b. $150/(1.12)16 = $24.47

c. $150/(1.06)8 = $94.11

d. $150/(1.06)16 = $59.05

Compute the future value of a $150 cash flow for the same combinations of rates and times: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Future Value
a. r = 12%, t = 8 years	$
b. r = 12%, t = 16 years
c. r = 6%, t = 8 years
d. r = 6%, t = 16 years

Explanation:

a. $150 × (1.12)8 = $371.39

b. $150 × (1.12)16 = $919.56

c. $150 × (1.06)8 = $239.08

d. $150 × (1.06)16 = $381.05

In 1880 five aboriginal trackers were each promised the equivalent of 100 Australian dollars for helping to capture the notorious outlaw Ned Kelley. In 1994 the granddaughters of two of the trackers claimed that this reward had not been paid. The Victorian prime minister stated that if this was true, the government would be happy to pay the $100. However, the granddaughters also claimed that they were entitled to compound interest.

a.	How much was each entitled to if the interest rate was 3%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Future value

$

b.	How much was each entitled to if the interest rate was 6%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Future value

$

Explanation:

a.

$100 × (1.03)114 = $2,906.99

b.

$100 × (1.06)114 = $76,712.94

a-1.	Calculate the present value of an annual payment of $900 you would received for 12 years if the interest rate is 3%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Present value

$

a-2.	Calculate the present value of an annual payment of $700 you would received for 17 years if the interest rate is 3%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Present value

$

a-3.	Which option would you prefer?
	$700 a year for 17 years

b-1.	Calculate the present value of an annual payment of $900 you would received for 12 years if the interest rate is 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Present value

$

b-2.	Calculate the present value of an annual payment of $700 you would received for 17 years if the interest rate is 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Present value

$

b-3.	Which option would you prefer?
	$900 a year for 12 years

rev: 01_28_2012


Explanation:

You should compare the present values of the two annuities.