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Present value of an annuity Consider the following cases. Case Annuity payment Interest rate Annuity length (years) A $ 12,000 7% 3 B 55,000 12
| Present value of an annuity | |||||
| Consider the following cases. | |||||
| Case | Annuity payment | Interest rate | Annuity length (years) | ||
| A | $ 12,000 | 7% | 3 | ||
| B | 55,000 | 12 | 15 | ||
| C | 700 | 20 | 9 | ||
| D | 140,000 | 5 | 7 | ||
| E | 22,500 | 10 | 5 | ||
| a. Calculate the present value of the annuity, assuming that it is | |||||
| (1) An ordinary annuity. | |||||
| (2) An annuity due. | |||||
| b. Compare your findings in parta(1) anda(2). All else being identical, which type of annuity - ordinary or annuity due - is preferrable? Explain why. |
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Step: 1
To calculate the present value of an annuity we can use the formula PV P 1 1 rn r Where PV Present Value P Annuity Payment r Interest Rate n Annuity L...
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
