A 15-Payment Annual Annuity Has Its First Payment in Nine

question 35

Multiple Choice

A 15-payment annual annuity has its first payment in nine years. If the payment amount is $1,400 and the interest rate is 7 percent,what is the most you should be willing to pay today for this investment?

• A)$6,416.67
• B)$12,751.08
• C)$6,935.74
• D)$5,825.11
• E)$7,421.24

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Definitions:

Deferred Income Taxes

Taxes applicable on income that is recognized in financial statements in one period but is taxable in another period.

Income Taxes Payable

Income taxes payable is a liability account on a company's balance sheet representing the amount of income taxes that the company owes to the government but has not yet paid.

Discount on Bonds Payable

The difference between the face value of a bond and the lower price at which it is sold, representing additional interest expense to the issuer over the bond's life.

Interest Expense

Costs incurred by an entity for borrowed funds, which are recognized on the income statement.