What is the present value today of an ordinary annuity cash flow of $4,000 per year for thirty years at an interest rate of 6.0% per year if the first cash flow is six years from today?
A)$120,000.00
B)$55,059.32
C)$45,138.89
D)$41,143.53

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity can be calculated using the formula for the present value of an annuity. First, calculate the present value of the annuity as of year 5 (since the first payment is at year 6) and then discount it back to today (year 0) using the formula: PV = PMT × [(1 - (1 + r)^-n) / r] and then discount this value back to present value today. The correct calculation results in approximately $41,143.53.

What Is the Present Value Today of an Ordinary Annuity