An annuity will pay you $12,000 per year for 20 years.What is the PV of this annuity if your cost of capital is 7%?

Question

Quizplus · Accepted Answer

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

PV = C x [(1 - (1 / (1 + r)^n)) / r]

Where: 
C = annual cash flow 
r = discount rate 
n = number of years

In this case, C = $12,000, r = 7%, and n = 20. Plugging these values into the formula, we get:

PV = $12,000 x [(1 - (1 / (1 + 0.07)^20)) / 0.07]
PV = $127,128

Therefore, the correct answer is (C).

An Annuity Will Pay You $12,000 Per Year for 20