Question

What is the present value of a 8-year ordinary annuity with annual payments of $538, evaluated at a 6 percent interest rate? Round it to two decimal places, i.e., 1234.45.

Answer 1

Present Value Of An Annuity

= C*[1-(1+i)^-n]/i]

Where,

C= Cash Flow per period

i = interest rate per period

n=number of period

= $538[ 1-(1+0.06)^-8 /0.06]

= $538[ 1-(1.06)^-8 /0.06]

= $538[ (0.3726) ] /0.06

= $3,340.87