How much is the equivalent present value in year 0 for a 5-yearannuity, starting at...

How much is the equivalent present value in year 0 for a 5-year annuity, starting at the end of year 1 with $10,000 at end of each year, at an annual interest rate at 8% per year, compounded quarterly? Chose the most accurate answer

Solutions

Expert Solution

Answer :$39, 672.46

Explanation

Formula;

Present value of annuity = pmt x {1 - (1+R)^-n/R)

PMT = $10000

N = 5 YEARS

RATE = 8 % COMPOUNDED QUARTERLY

EFFECTIVE RATE = (1+ 8%/4)^4 - 1

= 1.08243216 - 1

= 8.2432% per annum

Present value = 10000 x{1 - (1+8.2432%)^-5/8.2432%

=10000 x 3.967246

= $39672.46 or $39672

jeff jeffy answered 2 years ago

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