FAR 5 - Present Values and Annuities

Question 1

When is first payment of ordinary annuity? (In arrears)

Answer 1

End of the year

Question 2

When is first payment of annuity due?

Answer 2

Beginning of the year

Question 3

What are examples of Present Value of $1?

Answer 3

How much will the future amount you told me be worth today right now?

U.S. SAVINGS BOND
-it has big face ($25) but the present value is only $1.35

Capital lease buyout (at end of lease)

Bond principal payoff at end of term

Question 4

What are examples of Future Value of $1?

Answer 4

How much of the present amount you told me be worth in the future.

Bank Savings Account

Question 5

What are examples of Present Value of an Ordinary Annuity?

Answer 5

How much will the future SERIES amount you told me be worth today right now.

• $100,000 series payments to be made for 10 periods. The present value of an ordinary annuity is 6.145.
• Today right now, $614,500 is the amount that should be recorded

EXAMPLES
PERIODIC LEASE PAYMENTS
PERIODIC BOND PAYMENTS.

Question 6

What are examples of Future Value of an Ordinary Annuity?

Answer 6

How much will the present SERIES amount I told you be worth in the future.

• $5,000 series payments to be made for 5 periods. The future value of an ordinary annuity is 6.105.
• In the future, $30,525 will be the amount that I will get.

Example
Investing in an IRA.