In: Finance
Here, the payments will be same every year, so it is an annuity. For calculating the present value of annuity, we will use the following formula:
PVA = P * (1 - (1 + r)-n / r)
where, PVA = Present value of annuity, P is the periodical amount = $680, r is the rate of interest =4.35% and n is the time period = 13
Now, putting these values in the above formula, we get,
PVA = $680 * (1 - (1 + 4.35%)-13 / 4.35%)
PVA = $680 * (1 - ( 1+ 0.0435)-13 / 0.0435)
PVA = $680 * (1 - ( 1.0435)-13 / 0.0435)
PVA = $680 * (1 - 0.57490767404) / 0.0435)
PVA = $680 * (0.42509232595 / 0.0435)
PVA = $680 * 9.77223737829
PVA = $6645.12
So, required present value is $6645.12.