Question

 

Find the present value of the following ordinary annuities:

$600 per year for 10 years at 10%

$300 per year for 5 years at 5%

$600 per year for 5 years at 0%

Answer 1

1)	Present value of an annuity = C[(1-(1/(1+r)^t))/r]
	where C is the annuity payment that is 600
	r is the interest rate that is 10%
	t is the year that is 10
	Present value of annuity = 600*[(1-(1/((1.10)^10))/.10}
	Present value of annuity = $3686.74
2)	Present value of an annuity = C[(1-(1/(1+r)^t))/r]
	where C is the annuity payment that is 300
	r is the interest rate that is 5%
	t is the year that is 5
	Present value of annuity = 300*[(1-(1/((1.05)^5))/.05}
	Present value of annuity = $1298.84
3)	where C is the annuity payment that is 600
	r is the interest rate that is 0%
	t is the year that is 5
	Present Value = Future value/ ((1+r)^t)
	where r is the interest rate and t is the time period
	t	1	2	3	4	5
	future payment	600	600	600	600	600
	present value	600	600	600	600	600
	sum of present values	3000
	Present value of annuity = $3000