Question

What is the present value of an investment earning 6.2% and receiving $800.00 at the end of each year for four years?

a. $393.07

b. $2,759.44

c. $2,130.52

d. $2,853.42

e. Some other answer

Answer 1

Correct Answer:

Option: B $ 2,759.44

Working:

Formula for PV of Ordinary Annuity

A/R*{1-(1+R)^-N }

Putting values in the formula:

PV of Ordinary Annuity
A	$            800.00
R	6.2%
N	4

PV of Ordinary Annuity
A/R	12,903.23
(1+R)^-N	0.78614369
1-(1+R)^-N	0.21385631
A/R*{1-(1+R)^-N }	$        2,759.44

End of Answer.

Thanks