Polly graham will receive $12,000 a year for the next 15 years as a result of her patent. If a 9 percent rate is applied, should she be willing to sell out her future rights now for $100.000? Solution Appendix D PVA=AX PVIFA (9%, 15 periods) $12000x8.061=$96,732 Yes, the present value of the annuity is worth less than $100,000 9-11 Carrie Tune will receive $19, 500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for $160,000 Solution: Appendix d PVA=AX PVIFA(10%0, 20 periods) PVA=$19,500x8.514=$166023 o, the present value of the annuity is worth more than $160,000 9-12 The Clearinghouse Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the rate of $20,000 a year for the next 50 years. With a discount rate of 10 percent, what is the present value of your winnings? Solution: Appendix d PVA=AXPVIFA(10%0, 50 periods) PVA=$20,000x9.915=$198,300 S-311 Copyright o 2005 by The McGraw-Hill Companies, IncCopyright © 2005 by The McGraw-Hill Companies, Inc. S-311 9-10. Polly Graham will receive $12,000 a year for the next 15 years as a result of her patent. If a 9 percent rate is applied, should she be willing to sell out her future rights now for $100,000? Solution: Appendix D PVA = A x PVIFA (9%, 15 periods) = $12,000 x 8.061 = $96,732 Yes, the present value of the annuity is worth less than $100,000. 9-11. Carrie Tune will receive $19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for $160,000. Solution: Appendix D PVA = A x PVIFA (10%, 20 periods) PVA = $19,500 x 8.514 = $166,023 No, the present value of the annuity is worth more than $160,000. 9-12. The Clearinghouse Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the rate of $20,000 a year for the next 50 years. With a discount rate of 10 percent, what is the present value of your winnings? Solution: Appendix D PVA = A x PVIFA (10%, 50 periods) PVA = $20,000 x 9.915 = $198,300