What is the present value of a six-year, $5,000 per year annuity at a discount rate of 10 percent?
A)$21,776.30
B)$3,371.91
C)$16,760.78
D)$18,327.82

Question

Quizplus · Accepted Answer

The present value of an annuity is the sum of the present values of each of the individual payments. The present value of each payment is calculated by dividing the payment by the discount factor, which is 1 / (1 + r)^n, where r is the discount rate and n is the number of periods. In this case, the discount rate is 10% and the number of periods is 6, so the discount factor is 1 / (1 + 0.10)^6 = 0.56447. The present value of each payment is $5,000 / 0.56447 = $8,855.30. The present value of the annuity is the sum of the present values of each of the individual payments, which is $8,855.30 * 6 = $21,776.30.

What Is the Present Value of a Six-Year, $5,000 Per