Question

Find the present value of the annuity. Assume that all interest rates are annual rates.

Answer 1

Answer:

  $12,083.02

Step-by-step explanation:

The annuity formula is ...

  A = P(r/12)/(1 -(1 +r/12)^(-12t))

Where P is the present value, r is the annual rate, and t is the number of years. A is the monthly payment.

For your numbers, you have ...

  $245 = P(.08/12)/(1 -(1 +.08/12)^(-12·5)) = P·0.0202763943

  P = $245/0.0202763943 = $12,083.02

_____

The answer choices match payment periods between 8 and 9 years. At 245 per month for 5 years, the sum of payments is only $14,700, so the loan amount must be less than that.

This is a good one to ask your teacher about.