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What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?

Respuesta :

Zviko

Answer:

$10,446

Explanation:

The Present Value is the Dollar today of the Future cash flows.

Use the time value of money techniques to calculate the Present Value (PV) of the annuity.

N = 4

P/Y = 1

Pmt = $2,250

FV = $3,000

i = 5%

PV = ?

Using a Financial calculator to input the values as above, the PV is $10,446

anthougo

The present value of a 4-year ordinary annuity of $2,250 with additional $3,000 received at the end of Year 4 at 5% interest rate is $10,446.50.

Explanation:

Annuity factor for 4 years at 5% = 3.54595

N (# of periods) = 4

I/Y (Interest per year) = 5 years

PMT (Periodic Payment) = $2,250

FV (Future Value) = 0

Results:

PV = $7,978.40 ($2,250 x 3.54595)

Sum of all periodic payments = $9,000.00

Total Interest = $1,021.60

The present value of $3,000 received at the end of Year 4 at 5% is $2,468.10 ($3,000 x 0.82270).

Thus, the total present value of the annuity and additional amount at the end of Year 4 is $10,446.50 ($7,978.40 + $2,468.10).

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