Marcos will receive an annuity payment of $2,500,payable every two years,for the next ten years.The next payment is due two years from today.What is the present value of this annuity at a discount rate of 5 percent?

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula for the present value of an ordinary annuity. Since payments are every two years, the effective discount rate is 5% for each period. The present value is calculated by summing the present values of each payment: PV = $2,500 / (1.05)^2 + $2,500 / (1.05)^4 + $2,500 / (1.05)^6 + $2,500 / (1.05)^8 + $2,500 / (1.05)^10, which equals approximately $9,416.75.

Marcos Will Receive an Annuity Payment of $2,500,payable Every Two