Question

What is the present value of a $500 payment received at the end of each of the next five years, worth to you today at the appropriate discount rate of 6 percent? $1,105 $1,850 $2,106 $2,778

Answer 1

Answer:

PV= $2,106.18

Explanation:

Giving the following information:

Annual payment= $500

Number of periods= 5 years

Interest rate= 6%

To calculate the present value, first, we need to determine the future value:

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

A= annual payment

FV= {500*[(1.06^5) - 1]} / 0.06

FV= $2,818.55

Now, the present value:

PV= FV/(1+i)^n

PV= 2,818.55/1.06^5

PV= $2,106.18