Tracie will receive payments of $550 a month for ten years.What are these payments worth today at a discount rate of 6 percent,compounded monthly?

Question

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the current value of future payments at a given discount rate. The formula is PV = P * [(1 - (1 + r)^-n) / r], where PV is the present value, P is the payment amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments (months). Here, P = $550, r = 6%/12 = 0.005, and n = 10*12 = 120. Plugging these values into the formula gives PV = $550 * [(1 - (1 + 0.005)^-120) / 0.005], which calculates to approximately $49,540.40.

Tracie Will Receive Payments of $550 a Month for Ten