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Your father is about to retire and he wants to buy an annuity that will provide him with $85,000...

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Your father is about to retire and he wants to buy an annuity that will provide him with $85,000 of income for 20 years with the first payment coming immediately. The going rate is 5.15%. How much would it cost him to buy the annuity?

Present value of annuity:

The present value of annuity is the discounted present value of equal future periodic cash flows to be received over a specified period of time. The value depends on the discount rate, the payment amount and the time period for which the payments are received.

Answer and Explanation: 1

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We need to first calculate the present value of payments for 19 years. We do this as the formula for present value of annuity assumes payments made at...

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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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.


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