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PV & FV of a lump sum, PV & FV of an annuity. Differences?

There are four basic calculations: PV of a lump sum, FV of a lump sum, PV of an annuity, and FV of an annuity. Discuss the differences between each. Use examples to help explain.

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First, bear in mind the concept of the time value of money: that an investor (or most any one) would rather have the money today as opposed to some future date. If a person concludes they want the money today rather than a later date, the money will be discounted from the future back to today.

Why? Because the one who will pay the money can invest the funds at interest in the interim period between today and the future date. The payer does not have to put up as much money at the front because part of the future payment will come ...

Solution Summary

The solution presents a very practical response in explanation of the terms together with common real life examples.

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