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
