This problem demonstrates the dependence of the present value of an annuity on the number of payments. Using 7% compounded annually as the discount rate, calculate the present value of an ordinary annuity paying $1,000 per year for:
a) 5 years b) 10 years c) 20 years d) 30 years e) 100 years f) 1,000 years
Observe that the present value increases with increasing n, but at a diminishing rate. In this case, the 970 payments from Year 30 to Year 1,000 cause the present value to increase by only about 15%.

Question

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The Answer of This problem demonstrates the dependence of the present value of an annuity on the number of payments. Using 7% compounded annually as the discount rate, calculate the present value of an ordinary annuity paying $1,000 per year for:
a) 5 years b) 10 years c) 20 years d) 30 years e) 100 years f) 1,000 years
Observe that the present value increases with increasing n, but at a diminishing rate. In this case, the 970 payments from Year 30 to Year 1,000 cause the present value to increase by only about 15%.

This Problem Demonstrates the Dependence of the Present Value of an Annuity