What is the difference between the present value of an investment and the present value of an annuity? How are?
What is the difference between the present value of an investment and the present value of an annuity? How are they computed? What is amortization and how are the payments computed?
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Answer by John W
With an investment, the interest is being earned on the amount invested and perhaps reinvested (compounded) such that the amount of interest is based upon a greater amount with each period. With an annuity, a set amount is withdrawn with each period so the interest being earned in each period is on less and less money invested. With an investment, it's easy to calculate but with an annuity, you pretty much have to split it up by the number of annuity payments that are being made and do the calculation for each one as a separate investment hence to make that easy, they would print out amortization tables. There are equations as all investments are a summation of a series but these equations make certain assumption such as the annuity payments are all the same size etc.
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2013-05-16 Russell Investments Center
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2013-05-16 Russell Investments Center
Orignal From: What is the difference between the present value of an investment and the present value of an annuity? How are? and 2013-05-16 Russell Investments Center
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