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Math Help - Simple question about comparing PV's

  1. #1
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    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?
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  2. #2
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    Quote Originally Posted by Thyl21 View Post
    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.
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  3. #3
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    Quote Originally Posted by Thyl21 View Post
    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.
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