Consider an annuity-due with 24 annual payments. The first payment is 800 at time 0 and...

Consider an annuity-due with 24 annual payments. The first payment is 800 at time

0 and each subsequent payment increases by 7%. Find the PV of this annuity at an annual effective rate of interest

i=5%

Expert Solution

annuity in year 0 =800
growth =7%
Rate =5%
PV of annuity using formula of Geometric Progression=800/(1+5%)+800*(1+7%)/(1+5%)^2.............800*(1+7%)^23/(1+5%)^24
=800/1.05*(1+1.07/1.05.........+1.07^23/1.05^23)
=800/1.05*(1-(1.07/1.05)^24)/(1-1.07/1.05)=22911.13

jeff jeffy answered 2 years ago

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