## Present Value of Annuity:

An annuity consists of a stream of equal payments, with a constant time interval between two consecutive payments. The present value of an annuity is the amount today that an individual would view as equivalent to the annuity.

The value today is \$385,477.90.

The worth today is the present value of the cash flows from estate, which is an annuity. We can use the following formula to compute the present value of an annuity with periodic payment {eq}M {/eq} for {eq}T{/eq} periods, given periodic return {eq}r{/eq}:

• {eq}\displaystyle \frac{M(1 - (1 + r)^{-T})}{r} {/eq}

Applying the formula, the present value of the annuity is:

• {eq}\displaystyle \frac{30,000(1 - (1 + 2\%)^{-15})}{2\%} = 385,477.90 {/eq}