Question

Suppose the interest rate is 12% APR with monthly compounding. What is the present value of an annuity that pays $200 per month for 4 years?

Instruction: Type ONLY your numerical answer in the unit of dollars, NO $ sign, NO comma, and round to one decimal places. E.g., if your answer is $7,001.56, should type ONLY the number 7001.6, NEITHER 7,001.6, $7001.6,$7,001.6, NOR 7002. Otherwise, Blackboard will treat it as a wrong answer.

Answer 1

Given is monthly compounding use the frequency as 12

Interest rate per month (r) = APR/12 = 12%/12=1%

No of periods= Years*compounding frequency

=4*12=48

Deposit (PMT)=200

Present value of annuity= (PMT/r)*(1-(1+r)^-n)

=(200/0.01)*(1-(1+0.01)^-48)

Present Value of Annuity = 7594.8