If the annual interest rate is i,the present value of $X to be received at the end of each of the next n years is: A) $X/i. B) $X/(1 + i)ⁿ. C) $ \$ X \sum_{t=1}^{n} 1 /(1+i)^{t} $ D) $X[(1 + i)ⁿ] / [ i(1 + i)ⁿ - 1]. E) $X / [i(1 + i)ⁿ - 1].

Question

Quizplus · Accepted Answer

The correct formula to find the present value of an annuity is $ \$ X \sum_{t=1}^{n} 1 /(1+i)^{t} $. This formula takes into account the time value of money by discounting each payment back to its present value using the interest rate i. Option A is incorrect because it only calculates the present value of one payment, not an annuity. Option B is a garbled mix of various finance formulas and does not accurately represent the present value of an annuity. Option D and E include unnecessary and incorrect calculations, making them incorrect choices.

If the Annual Interest Rate Is I,the Present Value of $X