Ordinary Annuity

# Ordinary Annuity - How much will you have in 10 years •...

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Ordinary Annuity You won the lottery and will receive \$20,000 at the end of each of the next five years. What are your winning worth today if you assume a 9% discount rate? 1 + = r) (1 1 - 1 r C PVA t

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Financial Calculators We’ll now use the PMT key. Note  when entering more than one amount , the signs matter. 2
Ordinary Annuity You won the lottery and will receive \$20,000 at the end of each of the next five years. What are your winning worth today if you assume a 9% discount rate? Solve for PVA Enter 5, then N 3

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Another Example…FV Annuity You plan to build an office building. You will save \$20,000/year for 10 years at the end of each year (starting this year), and expect to earn 7.5%. How much will you have in 10 years? 4
Another Example…FV Annuity You plan to build an office building. You plan to save \$20,000/year for 10 years at the end of each year (starting this year), and expect to earn 7.5%.

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Unformatted text preview: How much will you have in 10 years? • Solve for FVA 5 Annuity Due • Like an Ordinary Annuity, an Annuity Due meets the same tests: – The payments are the same. – They occur in the same frequency. – There is a finite number of payments. – There is no period where a payment is 6 Cash Flow Timing • Before we said to assume that the first payment occurs one period from the present (or, at the end of the period). • Say, an Ordinary Annuity calls for five, annual \$20,000 payments…the PVA formula assumes the cash flows occur as follows: 7 1 2 3 4 \$20,000 \$20,000 \$20,000 \$20,000 \$20,000 5 1 2 3 4 \$20,000 \$20,000 \$20,000 \$20,000 \$20,000 5 Cash Flow Timing - PV • The PVA formula (and the calculator) will value these cash flows as of t =0 (one period before). 8 1 2 3 4 \$20,000 \$20,000 \$20,000 \$20,000 \$20,000 5 1 2 3 4 \$20,000 \$20,000 \$20,000 \$20,000 \$20,000 5-1...
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Ordinary Annuity - How much will you have in 10 years •...

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