Present Value
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For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?
a. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.
b. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
c. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.
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Solution Summary
This problem determines when the present value of an ordinary annuity would be an approriate calculation.
Solution Preview
An annuity is a stream of equal payments at regular time intervals.
An ordinary annuity involves payments that are received or paid at the end of each period.
Answer: A
Answers C and D can be ...
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