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24 November, 10:27

Garrett has many annuity that pays $2,460 at the beginning of each year. If the economy grows at a rate of 2.35% semiannually, what is the value of the annuity if he received it in a lump sum now rather than over a period of nine years?

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  1. 24 November, 10:57
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    FV value of the amount using future value annuity will be:

    FV=P[ (1+r) ^n-1]/r

    FV=2460[ (1+0.01175) ^18-1] / (0.01175)

    FV=48,992.23

    The present value of this amount will be:

    PV=pe^ (-rt)

    PV=48992.23e^ (-0.0235*9)

    PV=39,652.81
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