TVM45 - Present Value of an Annuity Due

Audio Transcript

ABC Corporation makes an investment today (January 1, 2019). They will receive $10,000 every December 31st for the next six years (2019 – 2025). If ABC wants to earn 11.5% on the investment, what is the most they should invest on January 1, 2019?

 

Present value of an annuity due

 

Enter the known variables.

The payment, PMT, is -$10,000.

The rate is 11.5%.

The number of periods, NPER, is 6.

The Type = 1, since payment is at the beginning of the year

We go to the Formulas tab and look for the PV function.

We click on PMT,

We click on rate,

We click on NPER.

We click on TYPE

We click OK

The present value, PV, is $46,499