You buy an annuity that will pay you $24,000 a year for 25 years. The payments are paid on the first day of each year. What is the value of this annuity today if the discount rate is 8.5 percent?
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33.
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You are scheduled to receive annual payments of $5,100 for each of the next 7 years. The discount rate is 10 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?
Difference = $27,312 - $24,829 = $2,483 Note: The difference = 0.1 × $24,829 = $2,483 |
34.
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You are comparing two annuities with equal present values. The applicable discount rate is 8.75 percent. One annuity pays $5,000 on the first day of each year for 20 years. How much does the second annuity pay each year for 20 years if it pays at the end of each year?
Because each payment is received one year later, then the cash flow has to equal: $5,000 × (1 + 0.0875) = $5,438 |
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