The present value of an annuity is the value now of a series of equal amounts to be
received (or paid out) for some specified number of periods in the future.
Example: What is the present value of receiving $1,000 each year for three years at
an interest of 10%, compounded annually?
The present value is $2,486.90.
Using the present value of an annuity table, we find
the factor for 10% and 3 periods, which is 2.4869.
We then multiply this factor
times the annuity payments of $1,000 to arrive at a present value of $2,486.90.
So, if
we invest $2,486.90 today at 10% for 3 years, we can receive payments of $1,000
each of the next 3 years.
Part I
On January 1, 2006, Starbucks bought some new delivery trucks. The company
signed a note agreeing to pay $200,000 on December 31, 2007.
The market interest
rate for this note is 12%.
What is the present value of this note?
Part II
Using the present value of a single amount table, we find the factor for 12% and 2
periods, which is .7972.
We then multiply this factor times the future value of
$200,000 to arrive at a present value of $159,440.
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 Fall '07
 anothony
 Accounting

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