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

To find the present value of an annuity, we use the annuity present value factor. In this case, the annuity present value factor with an interest rate of 10% and a term of 4 years is used. Therefore, the correct calculation for the present value of the gift would be:
PV = $3,000 x (1-1/(1+0.10)^4)/0.10 
PV = $9,703.07 (rounded to the nearest cent) 
Therefore, option C is the correct choice, as it uses the annuity present value factor.

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