What is the present value (PV)of an investment that pays $10,000 every year for four years if the interest rate is 7% APR,compounded quarterly?
A)$33,730
B)$33,872
C)$38,680
D)$40,000

Question

Quizplus · Accepted Answer

The present value of an annuity is the sum of the present values of each of the individual payments. The present value of each payment is calculated by dividing the payment by the discount factor, which is (1 + r/n)^(nt), where r is the annual interest rate, n is the number of times per year that the interest is compounded, and t is the number of years. In this case, r = 0.07, n = 4, and t = 4. So, the discount factor is (1 + 0.07/4)^(4*4) = 1.3382. The present value of each payment is $10,000 / 1.3382 = $7,472.58. The present value of the annuity is the sum of the present values of each of the four payments, which is $7,472.58 * 4 = $29,890.32.

What Is the Present Value (PV)of an Investment That Pays