Question:
Refer to the situation described in BE 6–8. What amount did Canliss borrow assuming that the first of the
five annual $10,000 payments was not due for three years?
Answer:
PVA = $10,000 x 4.10020= $41,002
Present value of an ordinary annuity of $1: n = 5, i = 7% (from Table 4)
PV = $41,002 x .87344 = $35,813
Present value of $1: n = 2, i = 7% (from Table 2)
Or alternatively:
From Table 4,
PVA factor, n = 7, i = 7% = 5.38929
– PVA factor, n = 2, i = 7% = 1.80802
= PV factor for deferred annuity = 3.58127
PV = $10,000 x 3.58127 = $35,813 (rounded)
Refer to the situation described in BE 6–8. What amount did Canliss borrow assuming that the first of the
five annual $10,000 payments was not due for three years?
Answer:
PVA = $10,000 x 4.10020= $41,002
Present value of an ordinary annuity of $1: n = 5, i = 7% (from Table 4)
PV = $41,002 x .87344 = $35,813
Present value of $1: n = 2, i = 7% (from Table 2)
Or alternatively:
From Table 4,
PVA factor, n = 7, i = 7% = 5.38929
– PVA factor, n = 2, i = 7% = 1.80802
= PV factor for deferred annuity = 3.58127
PV = $10,000 x 3.58127 = $35,813 (rounded)
