Present Value & Bonds Group Work

Note: For all calculations please provide the formula being used in words and then show substitution.

1. A contract calls for a lump-sum payment of $15,000. Find the present value of the contract assuming. When making these calculations, you need to use a present value factor that is carried to three decimal places to get the correct answers.

a. The payment is due in five years, and the current interest rate is 9 percent. Your answer should contain a dollar sign.

b. The payment is due in ten years and the current interest rate is 5 percent. Your answer should contain a dollar sign.

c. Between the two calculations, A and B, which option is the best option for the person receiving the payment? State in a full sentence why you chose this option.

2. A contract calls for annual payments of $1,200. Find the present value of the contract assuming. When making these calculations, you need to use a present value factor that is carried to three decimal places to get the correct answers.

a. The number of payments is 7 and the current interest rate is 6 percent. Your answer should contain a dollar sign and should be shown as dollars and cents.

b. The number of payments is 14 and the current interest rate is 8 percent. Your answer should contain a dollar sign and should be shown as dollars and cents.

c. Between the two calculations, A and B, which option is the best option for the person receiving the payment? State in a full sentence why you chose this option.