You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the ﬁrst day of each year. What is the value of this annuity today at a 7% discount rate?

Question

Quizplus · Accepted Answer

This is an annuity due, where payments are made at the beginning of each period. The present value of an annuity due can be calculated using the formula for the present value of an ordinary annuity, then multiplying by (1 + r) to account for the earlier payment. The correct calculation gives $90,182.79.

You Buy an Annuity Which Will Pay You $12,000 a Year