Question

What is the present value of a five-year $20,000 ordinary annuity plus of a lump sum of $110,000 at the end of year 5.

Discount rate of 12%

Can you please show me how to do this in excel instead? Thank you!

Answer 1

Calculation of Present value using Formula:

Present value = (PMT * (1 - 1/ (1+r)^n) / r) + FV / (1+r)^n

= ($20,000 * (1 - 1 / (1+0.12)^5) / 0.12) + ($110,000 / (1+0.12)^5)

= $72,095.524 + $62,416.9541

= $134,512.48

Present value = $134,512.48

OR

Calculation of Present value using Excel:

Rate = 12%

Nper = 5

PMT = $20,000

FV = $110,000

Present value can be calculated by using the following excel formula:

=PV(rate,nper,pmt,fv)

=PV(12%,5,-20000,-110000)

= $134,512.48

Present value = $134,512.48