SOLUTION: I think I have the answer I just need a double check: Find the present value for a $2500 annual annuity at 7% for 10 years: PV= P 1-(1 + r/m) ^-mt / (r/m) PV=2500[1-(1+.07)^(-

Question 196345: I think I have the answer I just need a double check: Find the present value for a $2500 annual annuity at 7% for 10 years:
PV= P 1-(1 + r/m) ^-mt / (r/m)
PV=2500[1-(1+.07)^(-10) /.07]
2500[1-.508 / .07]
2500[.492/.07]
2500[7.028]
2500*7.03
=$ 17,550.00
Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!

Well, the PV formula in Excel says it is $17,558.95, but the difference is round-off error. For any practical purpose, you are close enough. 10 years from now $8.95 may not buy you a whole gallon of gasoline.

=PV(0.07,10,2500) is what you would enter into a cell on a spreadsheet if you want to check it for yourself. The answer comes out negative because it is generally used to compare against the amount you would be asked to pay today for the annuity. For example if your investment guy said, 'hey give me 18K and I'll give you 2.5K back every year for ten years' then it is a bad investment (presuming that you can earn 7% annually on your money) because -18K < -17.5K

John

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