Question

WHAT ANNUITY OVER A 10-YEAR PERIOD AT 8% INTEREST IS EQUIVALENT TO A PRESENT WORTH OF P 100,000.00?

Answer 1

For the above case, I will use the annuity formula

PV=P*1-(1+r)^-n/r

PV is the present value which is P100,000.00

P is the value of each payment. This is what we are looking for

r is the interest rate which is 8%. I will divide 8% by 100 since its in percentage form, the answer is 0.08

n is the period which is 10 years

Explanation:

100,000.00=P*1-(1+0.08)^-10/0.08

1+0.08=1.08

1.08^-10=0.46319348808468448046743779982

1-0.46319348808468448046743779982=0.53680651191

0.53680651191/0.08=6.71008139887

100,000.00=6.71008139887P

100000.00/6.71008139887=14902.9488699

The answer is P 14902.95