# Thread: How do I calculate the Present Value of a Deferred Annuity?

1. ## How do I calculate the Present Value of a Deferred Annuity?

I am having a little trouble calculating the Present Value of a deferred Annuity. This is the question I have from my book:

What price will a finance company pay to a merchant for a conditional sale contract that requires 15 monthly payments of $231 beginning in six months? The finance company requires a rate of return of 18% compounded monthly. How would I calculate this? The answer to the question is:$2861.16, but I keep getting a different answer.

Thanks

2. Originally Posted by system32
I am having a little trouble calculating the Present Value of a deferred Annuity. This is the question I have from my book:

What price will a finance company pay to a merchant for a conditional sale contract that requires 15 monthly payments of $231 beginning in six months? The finance company requires a rate of return of 18% compounded monthly. How would I calculate this? The answer to the question is:$2861.16, but I keep getting a different answer.
1: get present value of the 231 payments; that'll be as at 5 months from now
2: get present value of results; that'll be as at now, or 2861.16

In other words, the 2861.16 accumulates for the 1st 5 months,
then the accumulated amount receives payments of 231
beginning in 6th month...OK?

3. This is what it'll look like.
Code:
Year  Payment   Interest     Balance
0                           2861.16
1               42.92       2904.08
2               43.56       2947.64
3               44.21       2991.85
4               44.88       3036.73
5               45.55       3082.28
6   -231.00     46.24       2897.52
.....
19   -231.00      6.78        227.58
20   -231.00      3.42           .00