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8 Present value of annuities and annuity payments The present value of an annuity is...

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8 Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows You have the opportunity to invest in several annuities Which of the following 10 year annuities has the greatest present value PV Assume that all annuities earn the same positive interest rate An annuity that pays 500 at the end of every six months An annuity that pays 500 at the beginning of every six months An annuity that pays 1 000 at the beginning of each year An annuity that pays 1 000 at the end of each year An ordinary annuity selling at 10 538 38 today promises to make equal payments at the end of each year for the next twelve years N If the annuity s appropriate interest rate I remains at 6 50 during this time the annual annuity payment PMT will be You just won the lottery Congratulations The jackpot is 35 000 000 paid in twelve equal annual payments The first payment on the lottery jackpot will be made today In present value terms you really won assuming annual interest rate of 6 50

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