Annuity due: Mark Holcomb has a five-year loan on which he will make annual payments of $2,235, beginning now. If the interest rate on the loan is 8.3 per cent, what is the present value of this annuity? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The present value of an annuity due can be calculated using the formula for the present value of an ordinary annuity and then multiplying by (1 + r) to account for the payments starting immediately. The present value of an ordinary annuity is calculated using the formula: PV = PMT * [(1 - (1 + r)^-n) / r]. For this problem, PMT = $2,235, r = 0.083, and n = 5. After calculating the present value of the ordinary annuity, multiply by (1 + 0.083) to adjust for the annuity due. The result is approximately $9,588.

Annuity Due: Mark Holcomb Has a Five-Year Loan on Which