You are scheduled to receive annual payments of $8,500 for each of the next 21 years....

You are scheduled to receive annual payments of $8,500 for each of the next 21 years. The discount rate is 8.0 percent. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

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Expert Solution

At end of year:

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=8500[1-(1.08)^-21]/0.08

=8500*10.0168032

=$85142.8272(Approx)

At beginning of year:

Present value of annuity due=Present value of annuity*(1+rate)

=85142.8272*1.08

=$91954.2534(Approx)

Hence difference=91954.2534-85142.8272

=$6811.43(Approx)

jeff jeffy answered 2 years ago

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