Question

You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate?

Answer 1

$90,182.40

Step-by-step explanation:

this is an annuity due since the payments are made on the first day of the year. The PVIFA due for 7% discount rate and 10 periods = 7.5152

The present value of the annuity due = annual payment x PVIFA due = $12,000 x 7.5152 = $90,182.40

The present value of an annuity due is always higher than the present value of an ordinary annuity.