Time Value of Money (1)

Present Value of Annuity

Hyun-Han Shin
PV of Annuity

Example 1
• Borrow money to purchase a house
• Pay $10,000 every year for next 10 years
 Annuity

• Interest rate is 10% per year

• What is the present value of annuity?
 Practice Question with Excel

Example 1

0 1 2 3 ⋯ 9 10

CF $10,000 $10,000 $10,000 ⋯ $10,000 $10,000

NPV $61,446.67
PV of Annuity

Example 1
• Google Drive
PV(rate, number_of_periods,payment_amount,
[future_value],[end_or_beginning])

• Microsoft Excel
PV(rate, nper, pmt, [fv], [type])