Present value = Annuity * [1 - 1 / (1 + r)^n] / r
Present value = 50,000 * [1 - 1 / (1 + 0.0325)^20] / 0.0325
Present value = 50,000 * [1 - 1.895837] / 0.0325
Present value = 50,000 * 14.5393
Present value = $726,967.3073
An annuity is a progression of equivalent incomes, or installments, made at customary stretches (e.g., month to month or every year). Equal payments with regular intervals between them are required.
An ordinary annuity's cash flows, or payments, occur at the end of the period.
The following is an illustration of a typical five-year annuity with annual cash inflows of $100: a timetable indicating that each of the next five years will see 100-dollar cash inflows.
At the finish of years 1 through 5, incomes are created. The first cash flow is generated at the end of the first year.
Ordinary annuities make up the majority of appraisal issues; Specifically, it is presumed that payments will be made at the conclusion of the period. The factors and formulas in AH 505 can only be used for ordinary annuities. An annuity in which the cash flows, or payments, begin at the beginning of the period is known as an annuity due. Annuity in arrears is another name for annuity due.
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