What is the present value of a 5-year ordinary annuity with annual payments of $200,evaluated at a 15 percent interest rate?
A) $670.43
B) $842.91
C) $1,169.56
D) $1,348.48
E) $1,522.64

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity is calculated as follows:PV = PMT * [1 - (1 + r)^-n] / rwhere:PMT = the annual paymentr = the interest raten = the number of yearsIn this case, PMT = $200, r = 15%, and n = 5. Plugging these values into the formula, we get:PV = $200 * [1 - (1 + 0.15)^-5] / 0.15PV = $200 * [1 - 0.5674] / 0.15PV = $200 * 0.4326 / 0.15PV = $670.43Therefore, the present value of the annuity is $670.43.

What Is the Present Value of a 5-Year Ordinary Annuity