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    Present Value of an Annuity

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    There are three factors that affect the present value of an annuity. 1) discount rate, 2) the number of discount periods, and 3) the amount of the periodic receipts or payments. I understand #1, but am having a problem with 2 and 3.

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    The present value of a certain amount A of money is greater than the present value of the right to receive the same amount of money time T in the future. This is because the amount A could be deposited in an interest-bearing bank account (or otherwise invested) from now to time T and yield interest. Consequently, lenders acting at arm's length demand interest payments for use of their financial capital. Additional motivations for ...

    Solution Summary

    The factors that affect the present value of an annuity are explained.