If the annual rate of interest is 6 percent, the present value of $100 to be paid every year for three years (beginning one year from now) is

Question

Quizplus · Accepted Answer

We can use the present value formula for an annuity:

P = A * [(1 - (1 + r)^-n) / r]

where P is the present value, A is the amount paid each year, r is the annual interest rate, and n is the number of payments.

In this case, A = $100, r = 6% = 0.06, and n = 3. We need to find P, the present value of the annuity.

P = $100 * [(1 - (1 + 0.06)^-3) / 0.06]
P = $100 * [(1 - 0.73503) / 0.06]
P = $100 * [9.9745]
P = $997.45

However, the question asks for the present value of the annuity one year from now. So we need to discount this value back one year using the formula:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of years.

In this case, FV = $997.45, r = 6% = 0.06, and n = 1. We need to find PV.

PV = $997.45 / (1 + 0.06)^1
PV = $940.50

So the present value of the annuity one year from now is $940.50, which is closest to choice C, $267.30.

If the Annual Rate of Interest Is 6 Percent, the Present