Question

Find the present value of an annuity of $3000 per year at the end of each of 10 years after being deferred for 5 years, if money is worth 5% compounded annually. (Round your answer to the nearest cent.)

Answer 1

In a deferred annuity, the annuity does not start from the end of the first year but from a few periods later. In this example the annuity starts after 5 years and the payment is made for 10 years.

The equation to be used to find the present value of a deferred annuity is as given below

1-(1+r)-n PV deferred annuity = A x X (1+r) +

PV annuity= $3000 x 1-(1 +0.05) -101 0.05 - (1 + 0.05)-5

PV annuity = $ 18,150.54