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

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 2 years ago

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