Suppose that you are examining an asset that promised to pay $500 at the end of each of the next 5 years.
If you are looking for 10% per annum interest on your money, then how much would you offer for this annuity?
Present Value of Annuity
Present value of annuity is the current worth of a series of periodic payments in the future. The core concept is the time value of money that states that a dollar in hand today is worth more than that same dollar to be received in the future.
Answer and Explanation: 1
- Annual Payments = $500
- Time = 5 years
- Rate = 10% = 0.10
We can calculate the present value of this annuity (annual cash inflow) to determine...
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fromChapter 8 / Lesson 3
Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.