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Periods 10% 11% 12% 13% 14% 1 0.909 0.901 0.893 0.885 0.877 2 1.736 1.713 1.690 1.668 1.647 3 2.487 2.444 2.402 2.361 2.322 4 3.170 3.102 3.037 2.974 2.914 5 3.791 3.696 3.605 3.517 3.433 6 4.355 4.231 4.111 3.998 3.889 7 4.868 4.712 4.564 4.423 4.288 8 5.335 5.146 4.968 4.799 4.639 Knowledge Check 01 You are expecting a series of annual cash flows of $25,000 for six years. What is the present value of this annuity if the discount rate is 12%

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Answer:

Present value of annuity  = $102,785.2

Explanation:

An annuity is a series of cashflow expected to be received or paid yearly for a certain number of years

The present value of annuity = A×( 1 - (1+r)^(-n) )/r

Where A is the annual cash flow= 25,000

n- number of years = 6

r- rate per period = 12%

25,000   ×   1- (1.12)^(-6)/0.12

25,000× 4.111=$102,785.2

Present value of annuity  = $102,785.2

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