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%?

Answer 1

$5,007.72

Step-by-step explanation:

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator.

Cash flow each year from year one to five = 0

Cash flow each year from year six to fifteen = $1000

I = 7%

Present value = $5,007.72

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you