The present value of £2,000 to be received each year for three years and earning a 10 per cent return is

Question

Quizplus · Accepted Answer

The formula for calculating the present value of an annuity is:
PV = CF * [(1 - (1 + r)^-n) / r]
where PV is the present value, CF is the cash flow per period, r is the interest rate per period, and n is the number of periods.
In this case, CF = £2,000, r = 10%, and n = 3. Plugging these values into the formula:
PV = £2,000 * [(1 - (1 + 0.1)^-3) / 0.1]
= £2,000 * [(1 - 0.7513) / 0.1]
= £2,000 * 2.4868
= £4,973.60
Therefore, the best choice is B) £4,974.

The Present Value of £2,000 to Be Received Each Year