Question

Hector will be receiving annual payments from an insurance policy that are represented by an ordinary annuity of $4100 that makes consecutive annual payments for a total of 9 years. The insurance company has however negotiated the terms of the policy such that the annuity will not begin at the end of year 1, but instead Hector will not receive the 9 year annuity's first payment until the end of year 4. Determine the equivalent present value of the policy to Hector if the interest rate is 5.15%.

Answer 1

rate	5.1500%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
-	0	-	-
-	1	-	-
-	2	-	-
-	3	-	-
4,100.000	4	3,353.87	3,353.87
4,100.000	5	3,189.61	6,543.48
4,100.000	6	3,033.39	9,576.87
4,100.000	7	2,884.82	12,461.69
4,100.000	8	2,743.53	15,205.22
4,100.000	9	2,609.16	17,814.38
4,100.000	10	2,481.37	20,295.75
4,100.000	11	2,359.84	22,655.58
4,100.000	12	2,244.26	24,899.84

Equivalent present value = 24,899.84