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5.3.2 PRESENT VALUE OF AN ANNUITY
Instructions: Use the following tutorial to help
introduce or reinforce the concept of Present Value of Annuity.
Read through the introduction, then study and familiarize
yourself with the definitions of terms. Next, use
the incremental calculator to study each step of
the process of determining Present Value of Annuity.
Finally,
use the calculator for examples to quiz yourself.
In certain instances,such as
AMORTIZATION OF LOANS, you may want to determine the current
value P of a sequence of equal periodic
payments that will be made over a certain period of time. After each
payment is made the new balance continues to earn interest at the
nominal rate. The amount P is referred to as the
present value of an annuity.
The following is the formula for present value of an annuity:
P = R [ 1-(1+i)-n/ i]
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Definitions
Incremental Calculator
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