Asked by Joseph Hernandez on Jul 01, 2024
A project has a life of ten years starting today. What is the present value today of a $1,000 annuity that begins at the end of the third year and continues until the end of the tenth year, given a 12% discount rate.
A) $4,811
B) $3,248
C) $4,734
D) $5,650
E) $3,960
Present Value
A calculation that determines the current worth of a future sum of money or stream of cash flows, given a specific rate of return.
Annuity
A fiscal product offering a consistent payout pattern, mainly aimed at supplying funds for individuals in retirement.
Discount Rate
In DCF analysis, the interest rate employed to find out the present value of cash flows expected in the future.
- Understand the concept of time value of money and its applications.
- Estimate the current and prospective value of annuities, for both normal and immediate annuities.
Learning Objectives
- Understand the concept of time value of money and its applications.
- Estimate the current and prospective value of annuities, for both normal and immediate annuities.