This problem demonstrates the dependence of the present value of an annuity on the discount rate. For an ordinary annuity consisting of 20 annual payments of $1,000, calculate the present value using an annually compounded discount rate of:
a) 5% b) 10% c) 11% d) 15%
Observe that the present value decreases as you increase the discount rate. However, the present value decreases proportionately less than the increase in the discount rate.

Question

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The Answer of This problem demonstrates the dependence of the present value of an annuity on the discount rate. For an ordinary annuity consisting of 20 annual payments of $1,000, calculate the present value using an annually compounded discount rate of:
a) 5% b) 10% c) 11% d) 15%
Observe that the present value decreases as you increase the discount rate. However, the present value decreases proportionately less than the increase in the discount rate.

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