SOLUTION: An investment will provide you with $100 at the end of each year for the next 10 years,What is the present value of that annuity if the discounted rate is 8% annually? I got $671.

Question 1104101: An investment will provide you with $100 at the end of each year for the next 10 years,What is the present value of that annuity if the discounted rate is 8% annually? I got $671.
It further asks what is the present value if the payments are received at the beginning of the month versus the end. I believe that would be annuity due. But not sure how to calculate? Please help

Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
671 is correct.
you received 100 at the end of each year.
if you receive 100 at the beginning of each year, the present worth should be 8% higher.
that's because each payment was 1 year closer to the present value year.
i double checked with my financial calculator and what i got confirms that.
the present value was 724.6887911 which is 8% more than 671.0081399

consider the following.

you get 100 at the end of 1 year.
the present value of that is 100 / 1.08.

you get 100 at the beginning of 1 year.
the present valueof that is 100.

100 is exactly 1.08 times 100 / 1.08

bottom line:

when the payments are at the beginning of the time period, the present value of those payments is the interest rate per time period greater than if the payments are at the end of the time period.

here are the present value calculations done in excel.

$$$

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