Question

What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%? a. $17,690 b. $18,621 c. $19,601 d. $20,633 e. $16,806

Answer 1

Answer:

PV= $20,632.89

Explanation:

Giving the following information:

Annual payments= $4,700

Interest rate= 4.5%

Number of years= 5

First, we need to calculate the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {4,700*[(1.045^5) - 1]} / 0.045

FV= $25,712.34

Now, we can determine the present value:

PV= FV/(1+i)^n

PV= 25,712.34/(1.045^5)

PV= $20,632.89