What is the present value of $1,400 a year at a discount rate of 8 percent if the first payment is received 7 years from now and you receive a total of 25 annual payments?

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Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula PV = PMT * [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the discount rate per period, and n is the total number of payments. However, since the first payment is received 7 years from now, we need to discount the calculated present value of the annuity back 6 years (to account for the payment starting in year 7). The correct present value, given the options, is $9,417.69, which accounts for both the calculation of the annuity's present value and the additional step of discounting that value to the present considering the delay in the start of the payments.

What Is the Present Value of $1,400 a Year at a Discount