Exercise 13-1, When completing the assignment, refer to Table 13-9 and Equation 4-4 on page 70

Exercise 13-1: "A representative of a reputable financial services company has approached you as manager of a four-person group of anesthesiologists with an opportunity to purchase a 10-year annuity due for each member of the group. The annuity due would pay $40,000 each year beginning five years from now (i.e. at time = 5). What is the most you would be willing to pay now, per each physician, for this investment? Assume an appropriate discount rate of 7%."

PV = FV,/(1 + i )" Equation 4-4 where PV = present value FV. = future value in time period n n = number of time periods i = interest rate (discount rate)table 13-9 Calculation of Net Present Value including Cash Flow Stream with an Embedded Annuity {Discount rate = 7%) 0 1 2 3 4 5 6 7 8 9 10 X $1000 $500 $750 $750 $750 $750 $750 $750 $500 $100 6 year embedded Ordinary $ 934.53 Annuity PMT = $750 436.72 3122.45 I $3574.89 271 .97 m w Net Present Value