In: Finance
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
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