Asked by Chapman Deane on May 10, 2024
Verified
The present value of $5,000 per year for three years at 12% compounded annually is $12,009.(PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s)from the tables provided.)\bold{\text{(Use appropriate factor(s)from the tables provided.)}}(Use appropriate factor(s)from the tables provided.)
Compounded Annually
A method of calculating interest where the interest is added to the principal sum each year, thus each subsequent interest calculation is made on an increased principal.
Present Value
The current value of a future amount of money or stream of cash flows given a specified rate of return.
- Attain knowledge about the fundamental doctrines of the time value of money, which include present value (PV), future value (FV), present value of an annuity (PVA), and future value of an annuity (FVA).
- Apply principles of the time value of money to derive the present and future monetary values of annuities.
- Leverage provided tables or formulas for performing calculations of present and future values.
Verified Answer
KC
Kitzia CoronaMay 16, 2024
Final Answer :
True
Explanation :
To find the present value of an ordinary annuity, we use the formula:
PV = PMT x (1 - 1 / (1 + r)^n) / r
where PV is the present value, PMT is the payment per period, r is the interest rate per period, and n is the number of periods.
Plugging in the values given:
PV = $5,000 x (1 - 1 / (1 + 0.12)^3) / 0.12
PV = $12,009.05 (rounded to the nearest cent)
Therefore, the statement is true. We could also use the PVA factor from the appropriate table to find the same present value.
PV = PMT x (1 - 1 / (1 + r)^n) / r
where PV is the present value, PMT is the payment per period, r is the interest rate per period, and n is the number of periods.
Plugging in the values given:
PV = $5,000 x (1 - 1 / (1 + 0.12)^3) / 0.12
PV = $12,009.05 (rounded to the nearest cent)
Therefore, the statement is true. We could also use the PVA factor from the appropriate table to find the same present value.
Learning Objectives
- Attain knowledge about the fundamental doctrines of the time value of money, which include present value (PV), future value (FV), present value of an annuity (PVA), and future value of an annuity (FVA).
- Apply principles of the time value of money to derive the present and future monetary values of annuities.
- Leverage provided tables or formulas for performing calculations of present and future values.
Related questions
Marshall Has Received an Inheritance and Wants to Invest a ...
Present and Future Value Computations Enable Companies to Measure or ...
The Present Value of Four $10,000 Semiannual Payments Invested for ...
The Present Value of an Annuity Table Can Be Used ...
The Future Value of $100 Compounded Semiannually for 3 Years \(\bold{\text{(Use ...