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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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How do you compute the present value of an annuity due?

To determine

Show the way in which present value of an annuity due has to be computed.

Explanation

Present value:

The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value.

Annuity: An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.

Cash flow occurs during the first day of each time period is known as an annuity due, whereas cash flow occurs during the last day of each time period is known as an ordinary annuity.

Present value of an annuity due can be computed from the following formula:

PVD=× [11(1+i)n1

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