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Present Value of an Annuity
Find the present values of the following ordinary annuities if discounting occurs once a year:
- $300 per year for 10 years at 10 percent.
- $150 per year for 5 years at 5 percent.
- $350 per year for 5 years at 0 percent.
Annuities are contracts issued and distributed (or sold) by financial institutions where the funds are invested with the goal of paying out a fixed income stream later on. They are mainly used for retirement purposes and help individuals address the risk of outliving their savings. Upon annuitization, the holding institution will issue a stream of payments at a later point in time.
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