Suppose you will receive $20,000 per year for five years. The interest rate is 7 percent. a.

Question:

Suppose you will receive $20,000 per year for five years. The interest rate is 7 percent.

a. What is the PV of the payments if they are in the form of an ordinary annuity? What is the PV if the payments are an annuity due?

b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the payments are an annuity due?

c. Which has the higher PV, the ordinary annuity or the annuity due? Which has the higher future value? Will this always be true?

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,... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...