Cora Company will receive $10,000 a year for 5 years, with all receipts at yearend. What is the present value of this annuity using a 10% discount rate?
A)$35,000
B)$37,908
C)$40,000
D)$41,699

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an annuity:

PV = C x [(1 - (1 / (1 + r)^n)) / r]

PV = 10,000 x [(1 - (1 / (1 + 0.10)^5)) / 0.10]
PV = 10,000 x [(1 - 0.6209) / 0.10]
PV = 10,000 x 6.791
PV = 67,910

Therefore, the present value of the annuity is $37,908.

Cora Company Will Receive $10,000 a Year for 5 Years