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P5–10 Present value calculation Without referring to the
preprogrammed function on your financial calculator, use the basic
formula for present value, along with the given opportunity cost, r,
and the number of periods, n, to calculate the present value of $1 in
each of the cases shown in the following table.
Case Opportunity cost, r Number of periods, n
A 2% 4
B 10 2
C53
D 13 2
P5–17 Cash flow investment decision Tom Alexander has an
opportunity to purchase any of the investments shown in the
following table. The purchase price, the amount of the single cash
inflow, and its year of receipt are given for each investment. Which
purchase recommendations would you make, assuming that Tom can
earn 10% on his investments?
Investment Price Single cash inflow Year of receipt
A $18,000 $30,000 5
B 600 3,000 20
C 3,500 10,000 10
D 1,000 15,000 40
P5–21 Time value: Annuities Marian Kirk wishes to select the better
of two 10-year annuities, C and D. Annuity C is an ordinary annuity
of $2,500 per year for 10 years. Annuity D is an annuity due of
$2,200 per year for 10 years.
a. Find the future value of both annuities at the end of year 10
assuming that Marian can earn (1) 10% annual interest and (2) 20%
annual interest.