Consider a three-year, $700 ordinary annuity (the first payment is due one year from now) and a

Question:

Consider a three-year, $700 ordinary annuity (the first payment is due one year from now) and a three-year, $700 annuity due (the first payment is due now). Assume a discount rate of 10 percent. For each of the two annuities, compute the equivalent value of the following points in time.

Now

The end of Period 1

The end of Period 2

The end of Period 3

Which of the above is referred to as the present value?

Which of the above is referred to as the future value?

Which of the two annuities is most valuable and b y how much?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...