What would you be willing to pay today to receive $5,000 at the end of each year for the next 10 years if interest is earned at a rate of 8% compounded annually?
A)$34,656
B)$36,235
C)$33,551
D)$72,433

Question

Quizplus · Accepted Answer

This is a present value of an annuity problem with annual compounding. Using the formula PV = PMT [(1 - (1/(1+r)^n)) / r], where PV is the present value, PMT is the payment per period, r is the interest rate per period, and n is the total number of periods, we can calculate the present value of the annuity:

PV = $5,000 [(1 - (1/1.08^10)) / 0.08] = $33,551.

Therefore, the amount to be paid today is $33,551. Choice C is the correct answer.

What Would You Be Willing to Pay Today to Receive