You are scheduled to receive annual payments of £10,000 for each of the next 25 years.Your discount rate is 8.5%.What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

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The present value of an annuity is the sum of the present values of each individual payment. If the payments are received at the beginning of each year, the present value of each payment is simply the payment divided by the discount rate. If the payments are received at the end of each year, the present value of each payment is the payment divided by the discount rate multiplied by the discount factor for one year. The discount factor for one year is 1 / (1 + r), where r is the discount rate.In this case, the discount rate is 8.5%, so the discount factor for one year is 1 / (1 + 0.085) = 0.9259. The present value of each payment if the payments are received at the beginning of each year is £10,000 / 0.085 = £117,647.06. The present value of each payment if the payments are received at the end of each year is £10,000 / 0.085 * 0.9259 = £108,948.08. The difference in the present value is £117,647.06 - £108,948.08 = £8,699.

You Are Scheduled to Receive Annual Payments of £10,000 for Each