Present Value [2914]

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Assuming payments in advance, what is the value of an ordinary annuity of $1,000 per month for 10 years if a discount rate of 6% is appropriate?

 

Solution (using annual tables)

Column

Rate

Months

Amount

Factor

Value

N/A

N/A

N/A

$1,000

1.000000

$1,000.00

5

0.5%

119

$1,000

89.523821

$89,523.82

 

 

 

 

 

$90,523.82

 

Solution (using monthly tables)

Column

Rate

Years

Amount

Factor

Value

N/A

N/A

N/A

$1,000

1.000000

$1,000.00

5

6.0%

10

$1,000

90.073453

$90,073

4

6.0%

10

-$1,000

0.549633

-$550

 

 

 

 

 

$90,523.82

 

This is a complicated problem but helps a lot in learning how the tables work.

Note that the annual tables can be used when the problem is on a monthly basis provided that you divide the interest rate by 12 and use the number of months.

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