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| n |
Annuity
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n |
Definition:
A series of equal payments
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n |
Example:
Receiving $1,000 a year for 5 years
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| n |
Present
value of an annuity
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n |
Because
money received at different times have different
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values,
the present value of this above annuity is less than
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$5,000.
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n |
At 6%
annual interest rate, $1 a year for 5 years has a
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present
value of 4.2124 (Table A.4, page 451). So the
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present
value of receiving $1000 a year for 5 years is
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4.2124*1000=$4,212
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n |
The
formula for this calculation is too complicated for this
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class.
However, I do ask you to be able to use Table A.4.
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