Explain what is meant by the present value of an ordinary annuity.
Question content area bottom
Part 1
Choose the correct answer below.
A.
It is the value of any single annuity payment.
B.
It is the value of the unpaid balance on an annuity at the specified point in time.
C.
It is the value of the sum of all the annuity payments before any interest is earned.
D.
It is the sum of the paid balance on an annuity at the specified point in time.

The present value of an ordinary annuity is **the value today of a series of future payments, discounted at a specific interest rate**. In other words, it's the total current worth of all future annuity payments, given the time value of money.

The correct answer is:
**B. It is the value of the unpaid balance on an annuity at the specified point in time.**

This represents the sum of the present values of all the future annuity payments.

Would you like more details or have any questions? Here are some related questions to consider:

1. How is the present value of an ordinary annuity calculated?
2. What factors affect the present value of an annuity?
3. How does the interest rate influence the present value of an annuity?
4. What is the difference between the present value of an ordinary annuity and an annuity due?
5. What are some practical applications of ordinary annuities in finance?

**Tip:** The higher the interest rate, the lower the present value of future annuity payments.

Explain what is meant by the present value of an ordinary annuity.

Discover how to calculate the present value of an ordinary annuity using key finance concepts like the time value of money. This problem involves applying the present value formula to understand how the worth of future payments is adjusted for interest over time. Ideal for students in Grades 11-12 or college-level finance courses.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation