Question

What is the value today of $1,800 per year, at a discount rate of 8 percent, if the first payment is received 4 years from now and the last payment is received 25 years from today?

Answer 1

Value of annuity at end of year 3 = PVA8%,22 *Amount

                             = 10.20074* 1800

                             = $ 18361.33

Value today =PVF8%,3*Value of annuity at end of year 3

              = .79383 * 18361.33

              = $ 14575.77

**Find present value factor using financial calculator (n=3,i=8% and FV=1) or from present value table at 8% for 3periods or using the formula 1/(1+i)^n

**Find present value annuity factor using financial calculator (n=22, i= 8% and PMT =1 ) or from present value annuity table at 8% for 22 periods.