Question

II. Find the present value of $10,000 received at the start of every year for 20 years if the interest rate is J1 = 12% p.A. And if the first payment of $10,000 is received at the end of 10 years

Answer 1

$26934.56

Explanation:

The present value of an annuity is the current value of payments gotten from an annuity in the future, given a rate of return, or discount rate. The present value of an annuity (PVOA) is given by the formula:

`PVOA=payment*([1-(1+r)^(-n)]/r)/((1+r)^(t-1))`

n = 20 years, t = 10 years, r =12% = 0.12, payment = $10000

`PVOA=10000*([1-(1+0.12)^(-20)]/ 0.12)/((1+0.12)^(10-1))` = $26934.56