This problem demonstrates the dependence of the present value of an annuity on the number of payments.

Question:

This problem demonstrates the dependence of the present value of an on the number of payments. Using 7% compounded annually as the discount rate, calculate the present value of an ordinary paying $1000 per year for:
a. 5 years.
b. 10 years.
c. 20 years.
d. 30 years.
e. 100 years.
f. 1000 years.
Observe that the present value increases with increasing n, but at a diminishing rate. In this case, the 970 payments from Year 30 to Year 1000 cause the present value to increase by just 15%.
Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...