Question

What is the PV of an annuity due with 5 payments of $7,900 at an interest rate of 5.5%? a. $41,997.01 b. $40,573.38 c. $41,285.20 d. $43,776.54 e. $35,590.69

Answer 1

Answer:

PV= $35,590.69

Explanation:

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

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

A= annual payment

FV= {7,900*[(1.055^5) - 1]} / 0.055 + {[7,900*(1.055^5)] - 7,900}

FV= 44,090.62 + 2,424.98

FV= 46,515.6

Now, we can determine the present value:

PV= FV/(1+i)^n

PV= 46,515.6 / (1.055^5)

PV= $35,590.69