You are to receive an annuity of $1,000 per year for 10 years. You will receive the first payment two years from today. At a discount rate of 10%, what is the present value of this annuity?

present value of annuity is $61445.66

Explanation:

given data

annuity P = $1,000 per year

time t = 10 year

rate r = 10% = 0.01

to find out

present value of annuity

solution

we will apply here present value formula that is

present value = P (1 - (1 + r) ^-t) / r ... 1

put here all value for r, t and P in equation 1

present value = P (1 - (1 + r) ^-t) / r

present value = 1000 (1 - (1 + 0.1) ^-10) / 0.01

present value = 61445.66

so present value of annuity is $61445.66