# 9.4 Find the following values assuming a regular, or ordinary, an

9.4 Find the following values assuming a regular, or ordinary, annuity:                                   a The present value of \$400 per year for ten years at 10 percent                                                 = \$400 x 6.145                                                 = \$2,458.00   b The future value of \$400 per year for ten years at 10 percent                                                 = \$400 x 15.937                                                 = \$6,374.80   c The present value of \$200 per year for five years at 5 percent                                                 = \$200 x 4.329                                                 = \$865.80 d The future value of \$200 per year for five years at 5                                                 = \$200 x 5.526                                                 = \$1,105.20   9.6 Consider the following uneven cash flow stream:                   Year                                Cash Flow               PV Factor                    Present Value 0                                         \$0                         1                                        250                        0.909                           227.25                 2                                        400                        0.826                           330.40                 3                                        500                        0.751                           375.50                 4                                        600                        0.683                           409.80                 5                                        600                        0.621                           372.60                                                                                                 Total                                                       1,715.55                                                                                                                                                                 =======  a What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent?                                                                                  \$1,715.55    9.7 Consider another uneven cash flow stream:    9.7 Year Ca Year                                Cash Flow               PV Factor                    Present Value 0                                         \$2,000                  1.000                           2,000.00 1                                           2,000                  0.909                           1,818.00                 2                                                 0                   0.826                                  0.00                 3                                           1,500                  0.751                             1,126.50                 4                                           2,500                  0.683                           1,707.50                 5                                           4,000                  0.621                           2,484.00                                                                                                 Total                                                       9,136.00                                                                                                                                                                 ======= a. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10  percent?                                                                 \$9,136.00 b What is the value of the cash flow stream at the end of Year 5 if the cash flows are invested in an account that pays 10 percent annually   Year                                Cash Flow                           FV Factor                    Future Value 0                                         \$2,000                  1.611                           3,222.00 1                                           2,000                  1.464                           2,928.00                 2                                                 0                   1.331                                  0.00                 3                                           1,500                  1.210                             1,815.00                 4                                           2,500                  1.100                           2,750.00                 5                                           4,000                  1.000                          4,000.00                                                                                                 Total                                                       14,715.00                                                                                                                                                                 =======     9.9 Assume that you just won \$35 million in the Florida lottery, and hence the state will pay you 20 annual payments of \$1.75 million each beginning immediately. If the rate of return on securities of similar risk to the lottery earnings (e.g., the rate on 20-year U.S. Treasury bonds) is 6 percent, what is the present value of your winnings?               Present Value of Annuity of Annuity of \$1,750,000 for 20 years                                                             Immediate Payment                                                    \$ 1,750,000                         Annuity for 19 years at 6% (1,750,000 x 11.158)      \$19,526,500                                     Total                                                                \$21,276,500                                                                                                             =========

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