Time value of money reading 1 shweser

  1. An investor will receive an annuity of $4,000 a year for 10 years. The first payment is to be
    received five years from today. At a 9% discount rate, this annuity’s worth today is closest to:
    A. $16,684.
    B. $18,186.
    C. $25,671

at the 1st step , in calculating ordinary annuity > why we discounted back to 10 not 11 years ?

For this annuity, you are receiving 10 payments at times 5, 6, 7, … 14, so you would plug in 10 in the immediate annuity formula as the number of payments.

Using your calculator, you could calculate the PV at time 4 as an immediate annuity or the PV at time 5 as an annuity due and discount back to time 0 appropriately. Even faster, use the CF worksheet to save yourself some steps!