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: Present value of an amount = Future value ( 1 + interest rate ) number of periods Annuity: An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time. To determine: The amount of lump sum payment that would be indifferent between the two alternatives.

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Chapter 6, Problem 5CPA

To determine

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:

Present value of an amount = Future value(1 + interest rate)number of periods

Annuity:

An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.

To determine: The amount of lump sum payment that would be indifferent between the two alternatives.

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