Question

Calculate the present value of an annuity immediate with 20 annual payments of 500 if the first payment of the annuity immediate starts at the end of the fifth year. The annual effective interest rate is 8%.

Answer 1

Answer:

500 x 6.6818 = $3,340.9

Explanation:

Calculate the present value of an annuity immediate with 20 annual payments of 500 if the first payment of the annuity immediate starts at the end of the fifth year. The annual effective interest rate is 8%.

PV of an Annuity = C x [ (1 – (1+i)-n) / i ]

But since the annuity immediate is starting at year 5 to year 25, we compute annuity at year 25 and less annuity at year 5 - to get the 20 years in between.

500 x [(1 - (1+0.08)^ - 25)/0.08] - 500 x [1-(1+0.08^-5)/0.08]

500 x (10.6748 - 3.993)

500 x 6.6818 = $3,340.9