What is the present value of a five-period annuity of $3,000 if the interest rate is 12% and the first payment is made today?
A) $9,655.65
B) $10,814.33
C) $12,112.05
D) $13,200.00

Question

Quizplus · Accepted Answer

The present value of an annuity due (where the first payment is made today) is calculated using the formula for the present value of an ordinary annuity, then multiplying by (1 + r) to account for the immediate payment. The present value of an ordinary annuity is calculated as: PV = Pmt * [(1 - (1 + r)^-n) / r]. For this problem, PV = $3,000 * [(1 - (1 + 0.12)^-5) / 0.12] * (1 + 0.12), which equals $12,112.05.

What Is the Present Value of a Five-Period Annuity of $3,000