Elton fenner expects to receive $2000 at the end of each year for the next two...

Elton fenner expects to receive $2000 at the end of each year for the next two years. Assuming an annual compound interest of 6% what is the present value of these two annual payments?

A. 3770

B. 3884

C. 3666

D. 3564

Solutions

Expert Solution

The present Value can be calculated using the following formula:

Present value = Future value x Present value factor

Year	Amount received	PVF $1 at 6%	Present Value
	[A]	[B = 1/(1.06)^YEAR]	[C = A x B]
1	$ 2,000	0.943 [1/(1.06)¹]	$ 1,886
2	$ 2,000	0.890 [1/(1.06)²]	$ 1,780
Total Present Value [1887 + 1780]			$ 3,666

Correct Answer = Option ‘C’ = $ 3,666

ekkarill92 answered 1 year ago

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