Jean will receive $8,500 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.
is this right?
I think If Jean will earn $8,500. per year for the next 15 years from her trust and the interest rate will be seven percent of the current value of the future payments will b$5.95. You would take the $8,500. x $5.95= $50,575. The answer would then be multiplied by $5.75 until you go through all fifteen years to get how much Jean would receive in fifteen years. I used the future value single amount to get the answer. This showed how to get the answer every year for years and what to multiply for years
I am in this class also. In the forum with the course materials and syllabus there are Appendixes. You will need to look under the Appendix for current value to give you the correct rate to multiply $8500 by. It didn't make sense to me either? I also looked in the Library under Student Finance Lab. There are a lot of post from other students having problems as well. This might help.
No, your calculation is not correct. To find the current value of future payments, you need to use the present value formula. The formula for calculating the present value of an annuity is:
PV = PMT x (1 - (1 + r) ^ -n) / r
Where PV is the present value, PMT is the payment amount ($8,500), r is the interest rate (0.07), and n is the number of periods (15 years).
To solve this, plug in the values into the formula:
PV = $8,500 x (1 - (1 + 0.07) ^ -15) / 0.07
Using a financial calculator or spreadsheet, the present value will be approximately $84,645.32.
I used the present value table because we need to calculate the current value of the future payments. The present value formula is designed to calculate the current value of a stream of future cash flows.
The approach you described is not correct. To determine the current value of the future payments, you need to use the present value of the annuity table or formula.
Here's how you can calculate it step by step using the present value of annuity formula:
1. Identify the relevant information:
- Annual payment: $8,500
- Number of years: 15
- Interest rate: 7%
2. Find the present value factor for an annuity of $1 per year for 15 years at a 7% interest rate. You can refer to a present value of annuity table or use a financial calculator. The present value factor for these inputs is 8.752.
3. Multiply the annual payment by the present value factor:
$8,500 x 8.752 = $74,432
Hence, the current value of the future payments Jean will receive over 15 years is approximately $74,432.
In this case, the present value of annuity table was used because we already know the annual payment amount and need to find the present value of the future payments. The future value table would be used if we had to find the value of an investment or a lump sum amount at a future date.