In this lesson students will:
- use a time diagram to develop the present value formula
- calculate the present value of a simple annuity due
Present Value – Simple Annuities Due
The Time Diagram Approach
Let’s begin this lesson by observing a time diagram of an ordinary simple annuity, similar to what we did in Lesson 6.1. Equivalent payments will be labelled as , and payment frequencies we use . The video below will guide you through the formulation of the present value formula for a simple annuity due.
Present Value Formula Examples
As we saw in our previous video, the present value formula for a simple annuity due is:
Let’s work through a couple examples to help solidify our use of the formula.