Question

You are to receive an annuity of $1,000 per year for 10 years. You will receive the first payment two years from today. At a discount rate of 10%, what is the present value of this annuity?

Answer 1

Answer:

present value of annuity is $61445.66

Explanation:

given data

annuity P = $1,000 per year

time t  = 10 year

rate r = 10% = 0.01

to find out

present value of annuity

solution

we will apply here present value formula that is

present value = P ( 1 - ( 1 + r )^-t ) / r  ..........................1

put here all value for r, t  and P in equation 1

present value = P ( 1 - ( 1 + r )^-t ) / r

present value = 1000 ( 1 - ( 1 + 0.1 )^-10 ) / 0.01

present value = 61445.66

so present value of annuity is $61445.66