Question
Hi I'm doing finance and I don't understand this question interms of the timeline. Could you please help. * present value of an annuity of
Hi I'm doing finance and I don't understand this question interms of the timeline. Could you please help.
- * present value of an annuity of $50 received at the end of each year for 10 years, with the first payment to be received at the end of the 6th year
PV= $50x[1-(1.08)^-10 / 0.08] = $355.50
PV= 335.50 / 1.08^5 = $228.34 . *
This is the answer provided by a student on coursehero. But I don't understand the calculations on the second line of formula, why is it 1.08^5?
I understand the first line, its doing PV annuity for the payments for 10 years worth of interest, but why calculate 5 when the question is asking for ending of every year for 6 years of the 10. It should be either 4 years or 6 years.
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