Question

Christina will receive annuity payments of $1,200 a year for five years, with the first payment occurring at Year 4. What is the value of this annuity to her today at a discount rate of 7.25 percent?

Please solve using steps for financial calculator.

I understand how to solve using formula on paper but need help with the calculator.

Answer 1

First payment occur at end of year 4

Value at year 3 = present value of annuity starting from year 4

financial calculator function:

Rate =7.25%

N = number of periods = 5

Pmt =annutiy = -1200

FV = future deposit at end = 0

PV = $4,887.48

This is value at end of year 3

To calculate today's value, this is future value=$4,887.48

Now

Rate = 7.25%

N = 3

Pmt = 0 as no payment between these period

future value =-$4,887.48

PV =$3,961.80

(to get positive value, FV will be negative signed)