Nancy Billows promised to pay her son $600 quarterly for four years. If Nancy can invest her money at 20% in an ordinary annuity, she must invest how much today? (Use the tables in the handbook.)

Question

Quizplus · Accepted Answer

To find the present value of an ordinary annuity, we use the present value of annuity formula: PV = PMT × [(1 - (1 + r)^-n) / r]. Here, PMT = $600, r = 20%/4 = 5% per quarter, and n = 4*4 = 16 quarters. Using the formula, the present value is approximately $6,502.68.

Nancy Billows Promised to Pay Her Son $600 Quarterly for Four