Annuity : Annuity is the periodical payments of predetermined sum based on the interest rate as per the contract between two parties. It is paid at fixed time intervals (usually every month). Each periodic payment consist Interest on outstanding principal and some part of principal. Initially, the portion of interest in the annuity is higher than the principal but the Interest part keeps decreasing and principal part keeps increasing over the time. Present Value Present value is the total sum of all the future cash flows, discounted on a given interest rate. The concept of Present value is helpful to analyze a project’s finance viability. All the future cash flows are discounted at the rate of interest for the given period and the total of all those discounted values is the present value of those cash flows. To Calculate: Present value of eight annuities of $10000 each discounted at the rate of 4%, Payable after every six months.

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Chapter 5, Problem 10P

Summary Introduction

Annuity:

Annuity is the periodical payments of predetermined sum based on the interest rate as per the contract between two parties. It is paid at fixed time intervals (usually every month). Each periodic payment consist Interest on outstanding principal and some part of principal. Initially, the portion of interest in the annuity is higher than the principal but the Interest part keeps decreasing and principal part keeps increasing over the time.

Present Value

Present value is the total sum of all the future cash flows, discounted on a given interest rate. The concept of Present value is helpful to analyze a project’s finance viability. All the future cash flows are discounted at the rate of interest for the given period and the total of all those discounted values is the present value of those cash flows.

To Calculate:

Present value of eight annuities of $10000 each discounted at the rate of 4%, Payable after every six months.

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