Accounting: The Language of Business - Vol. 2 (Intermediate: Part 106)

“You never achieve real success unless you like what you are doing.”
— Dale Carnegie

Accounting and the Time Value of Money (Part P)

by

Charles Lamson

Spreadsheet Solution to Solve Present Value of Annuity Due Problems. To solve present value of annuity due problems with a spreadsheet application such as Microsoft Excel, input the following variables into a spreadsheet cell: 

= PV(I/Y,N,PMT,FV,type)

For the present value of an annuity due, we put a 1 in the fifth position because the payments occur at the beginning of each period. We input a variable of 0 into the fourth position because this is not a future value problem. 

Financial Calculator Solution. Finally, present value of annuity due problems can be solved using a financial calculator. To solve the problem in Example 7.26, enter the following keystrokes. 

The calculator shows the present value of the annuity due is $(130,853.21). These keystrokes correspond to an inflow of $10,000 for 20 compounding periods at a 5% interest rate per compounding period. The fourth row of key strokes adjusts the variables to “ beginning mode” because this is an annuity due as opposed to an ordinary annuity.

 

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 345-346*

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