Calculating Present Value: Using an Ordinary Annuity Table for Social Science Students

The amounts that must be deposited now at 6% interest to permit withdrawals of $10,000 at the end of each period for a specified number of periods are contained in the:-present value of 1 table-future value of an ordinary annuity of 1 table-present value of an ordinary annuity of 1 table-present value of an annuity due of 1 table

present value of an ordinary annuity of 1 table

The correct table for finding the amounts that must be deposited now at 6% interest to permit withdrawals of $10,000 at the end of each period for a specified number of periods is the “present value of an ordinary annuity of 1” table.

An annuity is a series of equal periodic payments or receipts. The present value of an ordinary annuity is the current value of a series of equal periodic payments that are made at the end of each period, discounted at a given interest rate. In this case, we are looking for the amount that must be deposited now (the present value) to provide for a series of equal periodic payments (the withdrawals) at a given interest rate.

The present value of an ordinary annuity of 1 table provides the present value factor used to calculate the amount that must be deposited now. The factor is found by locating the interest rate and the number of periods in the table, and multiplying the factor by the periodic payment (in this case, $10,000). This will give us the amount of the deposits needed to provide for the withdrawals.

For example, if the withdrawals are to be made for 5 years and the interest rate is 6%, we can find the present value factor in the table for 5 periods at 6% interest rate, which is 4.2124. If we multiply this factor by the periodic payment of $10,000, we get $42,124. This is the amount that must be deposited now to provide for the withdrawals of $10,000 at the end of each period for 5 periods.

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