presentvalueofanannuitydue幻灯片.pptVIP

Chapter 13 Annuities Due 13.2 present value of an annuity due Present value of an annuity due 0 1 2 3 4 n-1 n R R R R R P1=R P2 P5 P4 Pn P3 Present Value Using the Algebraic Method 0 1 2 3 4 n-1 n R R R R R R 0 1 2 3 4 n-1 n R R R R R R PV PV(due) 0 1 2 3 4 n-1 n R R R R R R -1 PV PV(due) PV(due) =PV (1+p) Method 1 Present value of an annuity due (13-2) Method 2 0 1 2 3 4 n-1 n R R R R R R PV(n-1) PV(due)=R+ PVn-1 PV(due)=R+ PVn-1 Present value using the financial calculator functions +/- PV PMT n 1/Y FV R 0 n P BGN PV(due) CPT Application of the present-value calculation The market value of an annuity Fair market value of an annuity Present value of the annuity payments (discounted at the market rate of return) = The economic value of an annuity Current economic value of an annuity Present value of the annuity payments (discounted at a rate of return that money can earn on low-risk investments) = Example A lottery offers the winner a choice between a $300,000 cash prize or quarterly payments of $7000 beginning immediately and continuing for 20 years. Which alternative should the winner pick if money is worth 8% compounded annually? Example An annuity will pay $1000 at the end of June 2003 and every 6 months thereafter up to and including a payment at the end of June 2016. To the nearest dollar, what will be the economic value of the annuity on June 30,2003, if money will be worth 8% compounded quarterly for the first 5 years and 8% compounded semiannually for the remainder of the annuity’s term? Solution: June 2003 Dec. 2003 June 2007 June 2016 Dec. 2007 Dec. 2016 $1000 $1000 $1000 $1000 $1000 PV1(due) PV2(d