FIN 200 Week 8 DQ 2 - 7618

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3number
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  • Posted on: Thu 12 Apr, 2012
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Request Description

Jean will receive $8500 per year for the next 15 years from her trust. if a 7% interest rate is applied, what is the current value of the future payments? Describe how you solved this problem, including which table(for example, present value and future value) was used and why". need 150 to 300 word post

 

Current Value of Future Payments = Payment Per period *(Present value Ordinary factor of $1 for 15 period, 7%)

 

(Getting Present Value Ordinary annuity factor from Present value of $1 ordinary annuity  table)

 

Current Value = 8500*9.10791=$77417.24

 

So the current value of payment to be  received by Jean over the next 15 year is $77417.24.

 

We solved the problem by multiplying Present value ordinary annuity factor ($1 for 15 period, 7%) by the future amount to be received in each year.

 

The table used is Present Value ordinary annuity of $1 table because this table gives us the Present value of the $1 to be received each year for a combination period and interest rate which is called present value of ordinary annuity factor. So when we multiply the relevant present value ordinary annuity factor with the payment to be received in each period we get the present value of the future amounts to be received.

 

(For PV table refer http://www.principlesofaccounting.com/ART/fv.pv.tables/pvofordinaryannuity.htm)

 

Note: Its assumed the payment would be received at the end of each year that is ordinary annuity.

 

 

Solution Description

Jean will receive $8500 per year for the next 15 years from her trust. if a 7% interest rate is applied, what is the current value of the future payments? Describe how you solved this problem, including which table(for example, present value and future value) was used and why". need 150 to 300 word post

 

Current Value of Future Payments = Payment Per period *(Present value Ordinary factor of $1 for 15 period, 7%)