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 equal payments received or paid out over a specified time period in the future. In this case, the gift of $3,000 is an annuity that will be received at the end of each of the next four years. Using the annuity present value factor with a discount rate of 10% and a time period of four years, we can calculate the present value of the gift as PV = $3,000 x 3.1699 = $9,509.70. Therefore, the best choice is C.

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