If the present value of an ordinary, 7-year annuity is $7,900 and interest rates are 9.0 percent, what’s the present value of the same annuity due?

Answer 1

The Present Value Factor of One is 0.54703424482. To convert it to present value factor of ordinary annuity, deduct it from 1 and divide by .09. You should get a PV factor of Ordinary Annuity of 5.03295283533. To get the amount of periodic payment, simply divide 7,900 by the PV factor of ordinary annuity which will give you 1,569.66.

To convert the PV of ordinary annuity to annuity due, simply multiply the same by (1+r) or 1.09. You should get PV factor of annuity due of 5.4859185905. To get the present value of the payment, simply multiply the PV factor of annuity due by 1,569.66. This should give you 8,611.03 (present value of annuity due).