Your company is considering a payment plan to pay for a large piece of equipment. There are two payment options available:

Make a lump sum payment of $600000, or Make 25 annual payments of $30000 each, with the first payment to be made today.

The key to make the right choice is to compute the present value of the 25 installment payment, and then compare the PV to the lump sum payment. You would then choose the lower amount because you'll be paying less.

What's the present value of the installment payment plan, assuming that the proper annual discount rate is 7.40%?

In 5 years, you will start receiving monthly payments of $750 from a trust fund that one of your great parents set up for you. The first payment will be made at the very end of year 5 and the payments will last for 28 years. You plan to deposit the money you receive every month into a special account right away that pays 7.30% APR with quarterly compounding.

Today the account mentioned above has a balance of $13000.

Assuming that interest rate will stay constant, what will be the account balance at the end of the 13th year?

Answer rating: 100% (QA)

To compute the present value PV of the installment payment plan we can use the formula for the prese... View the full answer