Asked by Isabella Huynh on May 11, 2024
Verified
Finding the discounted value of $1,000 to be received at the end of each of the next five years requires calculating the:
A) future value of an annuity.
B) future value of a deferred annuity.
C) present value of an annuity.
D) present value of a deferred annuity.
Discounted Value
The present value of a future amount of money or a series of cash flows, adjusted for time value of money.
Annuity
A financial product that pays out a fixed stream of payments to an individual, usually used as an income stream in retirement.
- Illuminate the definition and arithmetic computation of annuities, emphasizing their current and prospective monetary values.
- Understand the process and importance of discounting in finding present values.
Verified Answer
JD
Jacob DeshayMay 18, 2024
Final Answer :
C
Explanation :
To find the discounted value of $1,000 to be received at the end of each of the next five years, we need to calculate the present value of an annuity. This involves using a present value formula that takes into account the time value of money (i.e. the fact that money is worth more in the present than in the future due to inflation, interest rates, etc.). Therefore, the correct choice is C, which stands for present value of an annuity.
Learning Objectives
- Illuminate the definition and arithmetic computation of annuities, emphasizing their current and prospective monetary values.
- Understand the process and importance of discounting in finding present values.