Estimate the present value of an annuity if payments are $1,500 monthly for 12 years and the account earns interest at the rate of 9% per year compounded continuously.
A) $105,563
B) $86,116
C) $129,803
D) $132,081
E) $104,177

Question

Quizplus · Accepted Answer

The formula for present value of an annuity is:

PV = PMT x ((1- (1+r/n)^(-nt))/(r/n))

where:
PMT = Payment per period
r = Annual interest rate
n = Number of compounding periods per year
t = Number of years

Plugging in the given values, we get:

PV = 1500 x ((1- (1+0.09/12)^(-12*12))/(0.09/12))
PV = $132,081

Therefore, the best choice is D.

Estimate the Present Value of an Annuity If Payments Are