Johnson has an annuity due that pays $600 per year for 15 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?
A)$5,296.27
B)$5,693.49
C)$9,000.00
D)$9,675.00

Question

Quizplus · Accepted Answer

An annuity due means payments are made at the beginning of each period. The present value of an annuity due can be calculated using the formula for the present value of an ordinary annuity, then multiplying by (1 + r) to account for the immediate payment. Using the formula: PV = Pmt * [(1 - (1 + r)^-n) / r] * (1 + r), where Pmt = $600, r = 0.075, and n = 15, the present value is approximately $5,693.49.

Johnson Has an Annuity Due That Pays $600 Per Year