What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of Year 4 if the interest rate is 5%?
A) $7,773.01
B) $9,253.58
C) $11,474.44
D) $7,125.25
E) $7,402.86

Question

Quizplus · Accepted Answer

Step 1: Calculate the present value of the annuity portion (first 3 years)

PV = $2,250 x [(1 - 1/(1+0.05)^4) / 0.05] = $7,252.23

Step 2: Calculate the present value of the additional payment at the end of Year 4

PV = $1,550 / (1+0.05)^4 = $1,259.35

Step 3: Add the two present values together

PV = $7,252.23 + $1,259.35 = $8,511.58

Therefore, the present value of the annuity is $8,511.58. The closest answer choice to this value is B: $9,253.58.

What's the Present Value of a 4-Year Ordinary Annuity of $2,250