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21 December, 23:34

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?

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  1. 21 December, 23:59
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    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
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