Thread: Simple question about comparing PV's

I understand that using the C x [1/r-1/r(1+r)^t] gives the PV value of an annuity one period from now.

So if I was asked to decide between paying $10,000 now, or an annuity with a calculated PV of $10,001, would I choose the $10,000 now? Or, do I need to calculate the PV of $10,000 one period from now, such that after one period of interest the PV of $10,000 now becomes greater than $10,001?

Originally Posted by Thyl21

I understand that using the C x [1/r-1/r(1+r)^t] gives the PV value of an annuity one period from now.

So if I was asked to decide between paying $10,000 now, or an annuity with a calculated PV of $10,001, would I choose the $10,000 now? Or, do I need to calculate the PV of $10,000 one period from now, such that after one period of interest the PV of $10,000 now becomes greater than $10,001?

The formula for the present value of an annuity is:
c * {[1 - 1 / (1+r)^t] / r}

I can't follow yours: can you rewrite it with PROPER BRACKETING.

And could you also clarify your question; thank you.

Originally Posted by Thyl21

I understand that using the C x [1/r-1/r(1+r)^t] gives the PV value of an annuity one period from now.

So if I was asked to decide between paying $10,000 now, or an annuity with a calculated PV of $10,001, would I choose the $10,000 now? Or, do I need to calculate the PV of $10,000 one period from now, such that after one period of interest the PV of $10,000 now becomes greater than $10,001?

I'm not sure I understand your question, but if you have the option between $10,000 and $10,001, you would prefer $10,001. You shouldn't have to do anything more than that if they are both present values already because they are already in the same time period.