Question

What is the present value of a series of annuity payments of $7,000 each for 12 years made annually with an annual discount rate of 5% with the first payment starting today?

Answer 1

Information provided:

Annuity payment= $7,000

Time= 12 years

Discount rate= 5%

The question is solved by calculating the present value of annuity due.

Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator to compute the present value of annuity due:

PMT= 7,000

N= 12

I/Y= 5

Press the CPT key and PV to to compute the present value of annuity due:

The value obtained is 65,144.8995.

Therefore, the present value is $65,144.90.

In case of any query, kindly comment on the solution.