As part of his retirement planning, your uncle has been offered a security that promises to pay $50,000 at the end of each next 20 years. If the interest rate is 6% how much should he be willing to pay for this security?
Value of the security: _ _ _ _?
Present Value Of Annuity:
The present value of annuity is the discounted present value of a series of payments. The discount rate is the required rate of return on similar risk cash flows and is directly proportional to the risk of the cash flows.
Answer and Explanation: 1
Value of the security: $573,496.06
The formula for the present value of annuity can be represented as:
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fromChapter 8 / Lesson 3
Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.