Patterns of Payment with a Deferred Annuity Time value of money problems may revolve around a number of different payment or receipt patterns. Not every situation will involve a single amount or an annuity. For example, a contract may call for the payment of a different amount each year over a three-year period. To determine present value, each payment is discounted to the present and then summed. (Assume 8% discount rate) 10 PV Factor n Payment X PV п of (1 +i)" >0.926 24926 1. $1,000 1,714 0.857 2,000 %3D 2. 2,382 0.794 %3D 3,000 3. $5,022 PV at time = 0
Patterns of Payment with a Deferred Annuity Time value of money problems may revolve around a number of different payment or receipt patterns. Not every situation will involve a single amount or an annuity. For example, a contract may call for the payment of a different amount each year over a three-year period. To determine present value, each payment is discounted to the present and then summed. (Assume 8% discount rate) 10 PV Factor n Payment X PV п of (1 +i)" >0.926 24926 1. $1,000 1,714 0.857 2,000 %3D 2. 2,382 0.794 %3D 3,000 3. $5,022 PV at time = 0
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
How are the discount values on determined? (0.926, 0.857, and 0.794).
Transcribed Image Text:Patterns of Payment with a Deferred Annuity
Time value of money problems may revolve around a number of different payment
or receipt patterns. Not every situation will involve a single amount or an annuity.
For example, a contract may call for the payment of a different amount each year
over a three-year period. To determine present value, each payment is discounted to
the present and then summed.
(Assume 8% discount rate)
10
PV Factor
n Payment X
PV
п
of
(1 +i)"
>0.926
24926
1. $1,000
1,714
0.857
2,000
%3D
2.
2,382
0.794
%3D
3,000
3.
$5,022
PV at time = 0
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