DISCOVER: Present Value of an Annuity
(a) Draw a timeline as in Example 1 to show that the present value of an annuity is the sum of the present values of each payment, that is,
(b) Use part (a) to derive the formula for given in the text.
The present value of an annuity is the sum of the present values of each payment, that is,
Timeline for individual payments.
Present value of an annuity is given by
is the amount of an annuity,
is the interest per time period and
is the total number of installments.
in equation ,
The formula for .
Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!Get Started