If the present value of an ordinary, 8-year annuity is $7,000 and interest rates are 8

Accounting Aug 17, 2020

If the present value of an ordinary, 8-year annuity is $7,000 and interest rates are 8.0 percent, what's the present value of the same annuity due? (Round your answer to 2 decimal places.)

Expert Solution

Year (n)= 8

Interest rate (r)= 8% or 0.08

Present value of Annuity = Annuity * (1- (1/(1+r)^n))/r

7000 = Annuity* (1-(1/(1+0.08)^8))/0.08

7000 = Annuity* 5.746638944

Annuity = 7000/ 5.746638944

= 1,218.103324

Present value of annuity due = Annuity + Annuity * (1- (1/(1+r)^(n-1)))/r

=1218.103324+1218.103324*(1-(1/(1+0.08)^(8-1)))/0.08

=7560

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