Wilt has a consulting contract that calls for annual payments of $50,000 a year for five years with the first payment due today.What is the current value of this contract if the discount rate is 8.4 percent?
A)$214,142.50
B)$201,867.47
C)$195,618.19
D)$197,548.43
E)$224,267.10

Question

Quizplus · Accepted Answer

The current value of the contract is calculated using the present value of an annuity due formula, as the first payment is made today. The formula for the present value of an annuity due is PV = Pmt * [(1 - (1 + r)^-n) / r] * (1 + r), where Pmt is the payment amount, r is the discount rate, and n is the number of periods. Using these values, the present value is $214,142.50.

Wilt Has a Consulting Contract That Calls for Annual Payments