Question

An insurance company quotes you a policy that requires you to pay $800.00 at the beginning of each month for the following year. If you can earn 5.16% APR with monthly compounding on your investments, what is the value of this policy in today's dollars? (express as positive number)

Answer 1

Present value = PV = ?

Payment = PMT = $800

Rate = r = 5.16%/12

Term = n = 12

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Formula for present value of annuity due:

PV = (PMT ((1 - (1 / (1 + r)^n)) / r)) x (1+r)

PV = (800*((1-(1/(1+5.16%/12)^12))/(5.16%/12)))*(1+5.16%/12)

PV = $9,377.13