Present Value of an Annuity What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?
A)$204.17
B)$440.80
C)$1,197.81
D)$1,938.96

Question

Quizplus · Accepted Answer

To calculate the present value of an annuity, we can use the following formula:

PV = A * [(1 - (1 + r)^-n) / r]

Where:
- PV = Present value of the annuity
- A = Annuity payment ($300)
- r = Interest rate (8% or 0.08)
- n = Number of periods (5 years)

Plugging the values into the formula, we get:

PV = $300 * [(1 - (1 + 0.08)^-5) / 0.08]
PV = $300 * [(1 - 0.68058) / 0.08]
PV = $300 * (8.01163)
PV = $2,403.49

Therefore, the present value of the annuity is $1,197.81 (rounded to the nearest cent), which is option C.

Present Value of an Annuity What Is the Present Value