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PV of Annuity

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Suppose you are to receive a stream of annual payments (also called an "annuity") of $9000 every year for 3 years starting this year. This discount rate is 6%. What is the present value of these three payments? Show all your steps and demonstrate a good understanding.

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Solution Summary

The solution calculates the present value of an annuity.

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Essentially, annuities are discounted in value for each year's payment due to the time value of money. In other words, a dollar today is worth more than a dollar tomorrow due to inflation, etc.

We use the formula PV=FV(1/(1+i)/n) ...

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