Your rich aunt has promised to give you $3,000 a year at the end of each of the next four years to help with college.Using a discount rate of 10%,the present value of the gift can be stated as

Question

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the present value of a series of future cash flows that are paid at a fixed interval over a set period of time. In this case, the gift of $3,000 is paid at the end of each of the next four years, making it an annuity. Using a discount rate of 10%, we can calculate the present value of the gift using the annuity PV factor. The formula for the present value of an annuity is:

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

Where PV is the present value, C is the amount of each payment, r is the discount rate, and n is the number of payments.

Plugging in the numbers from the question, we get:

PV = $3,000 x [1 - (1 + 0.10)^-4] / 0.10
PV = $9,757.36

Therefore, the best choice is C) PV = $3,000 (Annuity PV factor,i = 10%,n = 4).

Your Rich Aunt Has Promised to Give You $3,000 a Year