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An annuity will pay $1000 per year for 10 years, starting five years after today. What is the...

Question:

An annuity will pay $1000 per year for 10 years, starting five years after today. What is the present value (PV) of this annuity today, given that the interest rate is 7%?

Annuity:

An annuity will contribute a series of periodic payments within a given period. The stability of annuity payments is a benefit to investors who are seeking a fixed-income security for their retirement.

Answer and Explanation: 1

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Given information:

  • PMT = $1,000
  • N2 = 10
  • N1 = 5
  • I = 7%

Estimate the PV of the annuity:

{eq}PV = \displaystyle PMT\times\frac{1-(1 + I)^{-N2}}{I}...

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What is Annuity? - Definition & Formula

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Chapter 2 / Lesson 7
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An annuity is a fixed amount of income paid at regular intervals, such as monthly or quarterly. Learn the definition and formula for annuity, review examples of annuities, and understand how to determine the value of annuities.


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