Question

How do you find the ordinary annuity? like in this question _________________ $200,000 today + $125,000 per year for 10 years (ordinary annuity).?

Answer 1

We can calculate the valuation of ordinary annuity by understanding discounting the cash flows associated with future payments and finding the value of the present.

It has been assumed that discount rate=10%

NPV={125000/(1+.01)¹(1+.01)²(1+.01)3(1+.01)⁴(1+.01)⁵(1+.01)⁶(1+.01)⁷(1+.01)⁸(1+.01)⁹(1+.01)¹⁰}

=768,070.89

An ordinary annuity is a series of equal payments made at the end of consecutive periods.

=200,000+768,070.89

=968070.89