Question

Explain which variables would be included when using technology to calculate the present value of a lump sum and to calculate the present vaule of an annuity

Answer 1

Answer:

a. Present value of a lump sum =

PV = FV / ( 1 + i )ⁿ

b. Present value of an annuity =

P = PMT x ((1 – (1 / (1 + r)⁻ⁿ )) / r)

Step-by-step explanation:

a. Present Value of a Lump sum =

PV = FV / ( 1 + i )ⁿ

Where variables in the formula are explained as follows

PV = Present Value of the given amount today

FV = Future Value of the given amount

i = Discount rate

n = Number of periods

b. Present value of an annuity is given as:

P = PMT x ((1 – (1 / (1 + r)⁻ⁿ)) / r)

The variables in the equation are explained as the follows:

P = the present value of annuity

PMT = Payment per period or the amount in each annuity payment

r =  the interest or discount rate

n = total number of periods or the number of payments left to receive