Question

A. What is the present value of a 20-year $6,000 ordinary annuity paid annually and earning 5% interest?

B. Repeat for an annuity due.

Answer 1

Answer-

Given

Annual payment = PMT = $ 6000
Interest rtae = I/Y = 5 %
Number of years = N = 20
Future value = FV = $ 0
Preent value = PV = ?

A ) Ordinary annuty - the condition is that the annual payment 0f $ 6000 is made at the endof year.

Syubstituting the above values in calculator we get

Present value = PV = $ 74773,26

B) Annuity due - the condition is thta the annual paymnet of $ 6000 is made at the beginning of the year

Setting the financial calculator at the beginning mode we get

Syubstituting the above values in calculator we get

Prsent value = PV = $ 78511.92