Present Value of Ordinary Annuities

Front

What is the present value of an ordinary annuity?

Back

The present value of an ordinary annuity is the current worth of a series of future payments, discounted at a specific interest rate.

Front

What formula is used to calculate the present value of an ordinary annuity?

Back

PV = Pmt × [(1 - (1 + r)^-n) / r], where PV = present value, Pmt = payment per period, r = interest rate per period, n = total number of payments.

Front

How does the interest rate affect the present value of an annuity?

Back

A higher interest rate decreases the present value of an annuity because future payments are discounted more heavily.

Front

What is the impact of increasing the number of payments on the present value of an annuity?

Back

Increasing the number of payments generally increases the present value of an annuity, as more payments are received.

Front

Calculate the present value of an ordinary annuity with annual payments of $5,000 for 10 years at an interest rate of 8%.

Back

The present value of the annuity is $33,550.41.

Front

Determine the present value of an ordinary annuity with monthly payments of $1,200 for 8 years at an interest rate of 4%.

Back

The present value of the annuity is $98,447.20.

Front

Calculate the present value of an ordinary annuity with semi-annual payments of $3,000 for 12 years at an interest rate of 7%.

Back

The present value of the annuity is $48,175.10.

Front

Calculate the present value of an ordinary annuity with quarterly payments of $2,300 for 8 years at an interest rate of 5%.

Back

The present value of the annuity is $60,354.93.

Front

Find the present value of an ordinary annuity with semi-annual payments of $3,500 for 9 years at an interest rate of 6%.

Back

The present value of the annuity is $48,137.30.

Front

What is an ordinary annuity?

Back

An ordinary annuity is a sequence of equal payments made at the end of each period over a specified time.