Present Value and Future Value of Annuities
How would a manager calculate present value and future value for single amounts, annuities, and uneven streams of cash flow.
Solution Preview
1. The present value for a single amount:
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The present Value for a single amount is an amount today that is equivalent to a future payment, or series of payments, that has been discounted by an appropriate interest rate and is calculated as:
PV = FV
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(1 + i)^n
Where:
PV = Present Value
FV = Future Value
i = Interest Rate Per Period
n = Number of Compounding Periods
2. The present value for an annuity:
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Annuities are defined as being a stream of equal cash flows into the future at evenly spaced intervals. The Present Value of an Annuity (PVoa) is the value of a stream of expected or promised future payments that have been discounted to a single equivalent value today. The Present Value ...
Solution Summary
The solution determines the present value and future value of annuities.