Explore BrainMass
Share

Explore BrainMass

    Present Value of an Annuity - Compounding and Payment Periods

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A 5-year annuity of ten $5,300 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now.

    1. If the discount rate is 12 percent compounded monthly, what is the value of this annuity five years from now?
    2. If the discount rate is 12 percent compounded monthly, what is the value three years from now?
    If the discount rate is 12 percent compounded monthly, what is the current value of the annuity?

    © BrainMass Inc. brainmass.com October 10, 2019, 7:54 am ad1c9bdddf
    https://brainmass.com/business/finance/present-value-annuity-compounding-payment-periods-599913

    Solution Preview

    A 5-year annuity of ten $5,300 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now.

    1. If the discount rate is 12 percent compounded monthly, what is the value of this annuity five years from now?

    This is an ordinary annuity starting 9 years from now. Its value at inception will be:

    PV $38,729.05 This is the value 9 years from now
    FV $- This is the remaining value after the last payment is made
    PMT $(5,300.00) This is the amount of each semiannual payment
    NPER 10.00 This is the number of semiannual payments
    RATE 6.15% This is the discount rate ...

    Solution Summary

    This solution illustrates how to convert a monthly rate to a semiannual effective rate and how to find the present value of an annuity at different intervals where the compounding periods differ from the payment periods.

    $2.19