Annuity Example
Annuity is
equal cash for a limited period of time. Present value of annuity may be either
calculated by the following or may be obtained from the annuity table.
1-(1+i)-n
i
I= Interest Rate
N= number of year of
annuity
Annuity Example
Mr. Amin was offered a
annuity of $ 20,000 per year. Interest rate for the annuity is 6% .term of the
annuity is 4 years .Calculate the annuity factor and present value of annuity?
1.
Annuity Factor
= 1-(1.06)-4
.06
=.207/.06
=3.45
Annuity of 3.45 may also
be checked in annuity table in the year row of 4 under the interest rate of 6%.
2.
Present value of annuity
$ 20,000 x (3.25)
= $ 65,000
Present
value of annuity is calculated by multiplying the annuity amount with annuity
factor.
