The annual cash flows for year 1 is $500; year 2 is $400; and year 3 is $300. The opportunity cost is 7.5%. Present value of an annuity is the current value of future payment or the present value of a series of future periodic payments made at the end of each payment period. P V = P M T 1 ( 1 + r ) 1 + P M T 2 ( 1 + r ) 2 + P M T 3 ( 1 + r ) 3 Present value of an annuity due is the current value of future payment or the present value of a series of future periodic payments made at the beginning of each payment period. P V = P M T 1 ( 1 + r ) 0 + P M T 2 ( 1 + r ) 1 + P M T 3 ( 1 + r ) 2 Here, The present value is “ PV ”. The annual payment on investment is “ PMT ”. The interest rate is “ r ”.

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Chapter 4, Problem 15PROB

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The annual cash flows for year 1 is $500; year 2 is $400; and year 3 is $300. The opportunity cost is 7.5%.

Present value of an annuity is the current value of future payment or the present value of a series of future periodic payments made at the end of each payment period.

PV=PMT1(1+r)1+PMT2(1+r)2+PMT3(1+r)3

Present value of an annuity due is the current value of future payment or the present value of a series of future periodic payments made at the beginning of each payment period.

PV=PMT1(1+r)0+PMT2(1+r)1+PMT3(1+r)2

Here,

The present value is “PV”.

The annual payment on investment is “PMT”.

The interest rate is “r”.

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