Jeff Lovett 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 percent, what is the present value of this annuity? (Round to the nearest dollar.)

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 amount by the discount factor, which is (1 + r)^n, where r is the interest rate and n is the number of periods. In this case, the interest rate is 8.3% and the number of periods is 5. So, the discount factor is (1 + 0.083)^5 = 1.4693. The present value of each payment is $2,235 / 1.4693 = $1,520. The present value of the annuity is the sum of the present values of each of the individual payments, which is $1,520 * 5 = $7,600.

Jeff Lovett Has a Five-Year Loan on Which He Will