This problem demonstrates the dependence of the present value of an annuity on the discount rate. For
Question:
This problem demonstrates the dependence of the present value of an annuity on the discount rate. For an ordinary annuity consisting of 20 annual payments of $1000, calculate the present value using an annually compounded discount rate of:
a. 5%.
b. 10%.
c. 11%.
d. 15%.
Observe that the present value decreases as you increase the discount rate. However, the present value decreases proportionately less than the increase in the discount rate.
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,...Discount Rate Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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