Chapter 5, Problem 5.10BE

To determine

Deferred annuity:

A deferred annuity refers to the annuity which does not make payments immediately. It is a type of annuity contract which makes either monthly contribution to the account over time or leave their money in the account with a belief that it will grow.

Present Value:

The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:

$\text{Present value of an amount = }\frac{\text{Future value}}{{\left(\text{1 + interest rate}\right)}^{\text{number}\text{of}\text{periods}}}$

To determine: The amount that Company C borrowed assuming that the first of the five annual $10,000 payments was not due for three years.