What is the general equation for present value what

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Unformatted text preview: increasing the required return have on the present value of a future amount? Why? How are present value and future value calculations related? Annuities How much will you have at the end of 5 years if your employer withholds and invests $1,000 of your year-end bonus at the end of each of the next 5 years, guaranteeing you a 9 percent annual rate of return? How much would you pay today, given that you can earn 7 percent on low-risk investments, to receive a guaranteed $3,000 at the end of each of the next 20 years? To answer these questions, you need to understand the application of the time value of money to annuities. An annuity is a stream of equal periodic cash flows, over a specified time period. These cash flows are usually annual but can occur at other intervals, such as monthly (rent, car payments). The cash flows in an annuity can be inflows (the $3,000 received at the end of each of the next 20 years) or outflows (the $1,000 invested at the end of each of the next 5 years). Types of Annuities There are two basic types of annuities. For an...
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