Present Value of an Annuity

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Present Value of an Annuity

The dollar amount of money received today that would equal the value of money received in yearly payments in the future.

Let’s say the interest rate id 5%. If you had $952 you could put it in the bank and after a year your money would have grown to $1000. If you had $907 in two years the money would have grown to $1,000. Therefore $952 + $907($1,859) are equal in value to $1,000 received every year for two years. In this case, $1,859 is the present value of this two year annuity.

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