At a 5% interest rate per year compounded annually the present value of a 10 year ordinary annuity with annual payments of $2000 is $15443.47 .the PV pf 10 year annuity due with same interest rate and payments is close to: a 14708 b 16216 c 17443
Do you have more detiails as
Using calc
N =
Mentally think of a time line for the firt annuity. Each the cash flows are at the end of the year.
Now think for the ordinary annuity everthing comes 1 year earlier. You are discounting each cash flow by one year less.
This is a silly example but it illustrates the point
Think of just one cash flow in a years time of $1000
PV = 1000 / 1.05 = 952.28
Think if the $1000 is actually just paud now.
PV = $1000
PV (cash flow now) = PV (cash flow in 1 year) x (1.05)
1000 = 952.28 x 1.05 = 1000
PV Annuity Due = PV Ordinary Annuity x ( 1.05)
PV Annuity Due = 15443 x 1.05 - 16,216
Or you could just stick in the calc.
TVM kets in BGN mode
N = 10
i/y = 5
PMT =2000
CPT PV
I think they want you to do it the first method but the second is only a fraction slower. Butter would not to give you the number of years so the second method was not possible
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I would just go with PV annuity due = PV ordinary * (1+i). Quick and easy!!! 