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6 July, 01:30

Explain which variables would be included when using technology to calculate the present value of a lump sum and to calculate the present vaule of an annuity

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  1. 6 July, 01:42
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    a. Present value of a lump sum =

    PV = FV / (1 + i) ⁿ

    b. Present value of an annuity =

    P = PMT x ((1 - (1 / (1 + r) ⁻ⁿ)) / r)

    Step-by-step explanation:

    a. Present Value of a Lump sum =

    PV = FV / (1 + i) ⁿ

    Where variables in the formula are explained as follows

    PV = Present Value of the given amount today

    FV = Future Value of the given amount

    i = Discount rate

    n = Number of periods

    b. Present value of an annuity is given as:

    P = PMT x ((1 - (1 / (1 + r) ⁻ⁿ)) / r)

    The variables in the equation are explained as the follows:

    P = the present value of annuity

    PMT = Payment per period or the amount in each annuity payment

    r = the interest or discount rate

    n = total number of periods or the number of payments left to receive
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