Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 10QTD
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Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity.

Expert Solution
Step 1

Computation of the present value (PV) of an ordinary annuity can be done by using the below-mentioned formula:

   Accounting homework question answer, step 1, image 1           

Where,

C = Cash flow during a specified period

i = Interest Rate

n = frequency of payments

Step 2

Computation of PV of an annuity due can be done by using the below-mentioned formula:   Accounting homework question answer, step 2, image 1     

Where,

P = Periodic Payment

r = rate per period

n = number of periods

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