Question

For each of the following cases, calculate the present value of the annuity, assuming the annuity cash flows occur at the end of each year. Annuity 30,000, Interest Rate 7%, Period 7 yrs., Annuity 19,000, Interest Rate 6 %, Period 10 yrs.

Answer 1

Annuity = $30,000

Term = 7 years

Interest rate = 7%

Using the PVIFA to get the present value of these receipts

Present value of annuity = Annuity * (1 - (1 + interest rate)^{- no of periods} ) / interest rate

Present value of annuity = $30,000* (1 - (1 + 7%)^-7 ) / 7%

Present value of annuity = $161,678.68

Annuity = $19,000

Term = 10 years

Interest rate = 6%

Using the PVIFA to get the present value of these receipts

Present value of annuity = Annuity * (1 - (1 + interest rate)^{- no of periods} ) / interest rate

Present value of annuity = $19,000* (1 - (1 + 6%)^-10 ) / 6%

Present value of annuity = $139,841.65