Meaning of PRESENT VALUE OF AN ANNUITY
The present estimation of annuity recipe decides the estimation of a progression of future intermittent installments at a given time. The present estimation of annuity recipe depends on the idea of time estimation of cash, in that one dollar present day is worth more than that same dollar at a future date.
Rate Per Period
Likewise with any budgetary equation that includes a rate, it is imperative to ensure that the rate is reliable with alternate variables in the recipe. On the off chance that the installment is every month, then the rate should be every month, and comparably, the rate would should be the yearly rate if the installment is yearly.
A case would be an annuity that has a 12% yearly rate and installments are made month to month. The month to month rate of 1% would should be utilized as a part of the equation.
The recipe demonstrated has presumptions, in that it must be a conventional annuity. These suppositions are that
1) The intermittent installment does not change
2) The rate does not change
3) The first installment is one period away
On the off chance that the installment and/or rate changes, the present's count quality would should be balanced contingent upon the specifics. On the off chance that the installment increments at a particular rate, the present estimation of a developing annuity recipe would be utilized.
In the event that the first installment is not one period away, as the third supposition requires, the present estimation of annuity due or present estimation of conceded annuity may be utilized. An annuity due is an annuity that is introductory installment is toward the annuity's start rather than one period away. A conceded annuity pays the introductory installment at a later time.
The present estimation of annuity recipe decides the estimation of a progression of future intermittent installments at a given time. The present estimation of annuity recipe depends on the idea of time estimation of cash, in that one dollar present day is worth more than that same dollar at a future date.
Rate Per Period
Likewise with any budgetary equation that includes a rate, it is imperative to ensure that the rate is reliable with alternate variables in the recipe. On the off chance that the installment is every month, then the rate should be every month, and comparably, the rate would should be the yearly rate if the installment is yearly.
A case would be an annuity that has a 12% yearly rate and installments are made month to month. The month to month rate of 1% would should be utilized as a part of the equation.
The recipe demonstrated has presumptions, in that it must be a conventional annuity. These suppositions are that
1) The intermittent installment does not change
2) The rate does not change
3) The first installment is one period away
On the off chance that the installment and/or rate changes, the present's count quality would should be balanced contingent upon the specifics. On the off chance that the installment increments at a particular rate, the present estimation of a developing annuity recipe would be utilized.
In the event that the first installment is not one period away, as the third supposition requires, the present estimation of annuity due or present estimation of conceded annuity may be utilized. An annuity due is an annuity that is introductory installment is toward the annuity's start rather than one period away. A conceded annuity pays the introductory installment at a later time.
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