Each of the following problems describes an annuity, Ask an Expert

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Each of the following problems describes an annuity. Determine whether the amount indicated is the annuity’s present value or future value. Also, provide a 1-sentence explanation.

(a) The Belcoda Municipal Electric Company expects that in 5 years’ time, it will need to make significant upgrades to its equipment. In order to set aside enough money to pay these expenses, the utility has begun depositing $98,000 each quarter in to an investment account each quarter. Is the amount they are trying to accumulate a present value or future value?

(b) Otisco County won a judgment against a former contractor that will require the contractor to pay the county $52,000 per year for the next 20 years. Instead of having to make payments for the next 20 years, the contractor offers to pay the county $835,000 in one lump sum immediately. Does the $835,000 amount represent a present value or future value?

(c) Three years ago, Merl bought a new car and borrowed the entire cost. Is the cost of the car the present value of his monthly payments or the future value?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91793027

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