The present value of an annuity can be obtained by discounting the individual cash flows of the annuity and then summing the resulting present values.

Question

Quizplus · Accepted Answer

The present value of an annuity is calculated by discounting each of the annuity's periodic cash flows back to their present value and then summing those present values. This process accounts for the time value of money, recognizing that a dollar received in the future is worth less than a dollar received today.

The Present Value of an Annuity Can Be Obtained by Discounting