What is the present value of an annuity of $100 received at the end of each year for seven years? The first payment will be received one year from today (round to nearest $10).The discount rate is 13%.
A)$440
B)$43
C)$500
D)$1,040

Question

Quizplus · Accepted Answer

The present value of an annuity is the sum of the present values of each of the individual payments. The present value of each payment is calculated by dividing the payment by (1 + r)^n, where r is the discount rate and n is the number of years from today that the payment will be received. In this case, the discount rate is 13% and the first payment will be received one year from today, so the present value of the first payment is $100 / (1 + 0.13)^1 = $88.49. The present value of the second payment is $100 / (1 + 0.13)^2 = $77.87, and so on. The present value of all seven payments is $88.49 + $77.87 + $68.47 + $60.15 + $52.79 + $46.32 + $40.55 = $444.64, which rounds to $440.

What Is the Present Value of an Annuity of $100