Example 1: Assume that $1 is to be received at the end of each of 5 periods, as separate amounts, and

earns 5% interest compounded annually.

PVF -OA n,i= 1- (1/(1+i)^n)/ i

N = 5 I = 5%

= 1- (1/1+5%^5) / 5%

= 4.32948

Example 2: What is the present value of rental receipts of $6,000 each, to be received at the end of each
of the next 5 years when discounted at 6%?

N = 5 I = 6%

PV (OA) =6000 x 4.21236 = 25,274.16

Example 3: Jaime wins $2,000,000 in the state lottery. She will be paid $100,000 at the end of each year
for the next 20 years. How much has she actually won? Assume an appropriate interest rate of 8%.

N = 20

I = 8%

PV(OA) = 100,000 x 9.81815 = $981,815

Example 4:

You wish to withdraw $10,000 at the end

of each of the next 4 years from a bank account that pays 12% interest compounded annually.
How much do you need to invest today to meet this goal?

N=4

I = 12%

PV(OA) = 100,000 x 3.03735 = 303,735

Example 5:

If annual interest rate is 2%, what will be the fund balance in 4 years if $10,000 cash flow happens at the
beginning of each year?

N=4

I = 2%
= 4.12161 x (1 + .02)

= 4.2040422

FV-AD = 10,000 x 4.2040422

= 42,040.422

Example 6

If the interest rate is 10%, the factor for the future value of an annuity due of 1 for n = 5, i = 10% is equal
to the factor for the future value of an ordinary annuity of 1 for n = 5, i = 10%

a. plus 1.10.

b. minus 1.10.

c. multiplied by 1.10. Answer

d. divided by 1.10.

Example 7

Sue Lotadough plans to deposit $800 a year on each birthday of her son Howard. She makes the first
deposit on his tenth birthday, at 6% interest compounded annually. Sue wants to know the amount she
will have accumulated for college expenses by her son’s eighteenth birthday.

N = 8 I = 6%

FV – AD = 800 x 9.89747 x (1+6%)

= 8,393.06

Example 8:

Jaime wins $4,000,000 in the state lottery. She will be paid $200,000 at the beginning of each year for
the next 20 years. How much has she actually won? Assume an appropriate interest rate of 8%.

PV-AD = 200,000 x 10.60360

= 2,120,720
Example 9:

On January 1, 2020, you are considering making an investment that will pay three annual payments of
$10,000. The first payment is not expected until December 31, 2022. You are eager to earn 3%. What is
the present value of the investment on January 1, 2020? 

Deferred annuity

PV1= 10000 / (1+3%)^3 = 9151.4

PV2 = 10000 / (1+3%)^4 = 8,884.9

PV3 = 10000 / (1+3%)^5 =8,626.1

PV of Deferred Annuity = 9151.4 + 8884.9 + 8626.1

= 26,662

Or

PV-OA 5,3% - PV-OA 2,3%

= 10,000 x 4.57971 – 10,000 x 1.91347

=45797- 119.135

=26,662