Your wealthy neighbor has promised to give you $3000 a year at the end of each of the next four years to help with college. Using a discount rate of 4%, the present value of the gift can be stated as

Question

Quizplus · Accepted Answer

To calculate the present value of an annuity, we need to use the annuity PV factor. Using a discount rate of 4% and a time period of 4 years, we can find the annuity PV factor to be 3.6299. Multiplying this factor by the annual payments of $3000 gives us a present value of $10,889.70. So, the correct choice is D.

Your Wealthy Neighbor Has Promised to Give You $3000 a Year