Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity.
Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 10QTD
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Question
Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity.
Expert Solution
Step 1
Computation of the present value (PV) of an ordinary annuity can be done by using the below-mentioned formula:
Where,
C = Cash flow during a specified period
i = Interest Rate
n = frequency of payments
Step 2
Computation of PV of an annuity due can be done by using the below-mentioned formula:
Where,
P = Periodic Payment
r = rate per period
n = number of periods
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