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Unformatted text preview: FV = A ³ (1 + r ) n − 1 r ´ On the other hand, the present value of an annuity requires each future payment to be discounted by the appropriate discount factor. Thus the payment A received at the end of the Frst period is worth A / (1 + r ) today, while a payment A at the end of the second period is worth A / (1 + r ) 2 today. So the present value of the annuity is PV = A (1 + r ) + A (1 + r ) 2 + ··· + A (1 + r ) n − 1 + A (1 + r ) n with solution PV = A ³ 1 − (1 + r ) − n r ´ Example 3.8 £ 1,000 is deposited at the end of each year in a savings account that earns 6.5% interest compounded annually. (a) At the end of ten years, how much is the account worth? (b) What is the present value of the payments stream?...
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This note was uploaded on 12/14/2011 for the course ECO 3023 taught by Professor Dr.gwartney during the Fall '11 term at FSU.
- Fall '11