Chapter 4, Problem 12PROB

Summary Introduction

The annual payment is $230 for next 15 years at 11% of an opportunity cost rate.

Present value of an annuity is the current value of future payment or the present value of a series of future periodic payments made at the end of each payment period.

$P{V}_{\text{Annuity}}=PMT\left[\frac{1-\frac{1}{{\left(1+r\right)}^n}}{r}\right]$

Present value of an annuity due is the current value of future payment or the present value of a series of future periodic payments made at the beginning of each payment period.

$P{V}_{\text{Annuity due}}=PMT\left[\frac{\left(1-\frac{1}{{\left(1+r\right)}^n}\right)\times \left(1+r\right)}{r}\right]$

Here,

The present value of an annuity is “$P{V}_{\text{Annuity}}$”.

The periodic payments are “PMT”.

The interest rate is “r”.

The maturity period of number of years is “n”.