Question

What is the present value of $2,500 per year for 10 years discounted back to the present at 9 percent?

Q) The present value of $2,500 per year for 10 years discounted back to the present at 9 percent is__?

Please show your work.

Answer 1

Present Value of Ordinary Annuity/Annuity Regular

Present Value of an Ordinary Annuity is calculated by using the following formula

Present Value of an Ordinary Annuity = P x [{1 - (1 / (1 + r) n} / r]

Interest Rate (r) = 9% per year

Number of Periods (n) = 10 Years

Annual Payment = $2,500 per year

Present Value of Ordinary Annuity = P x [{1 - (1 / (1 + r) ⁿ} / r]

= $2,500 x [{1 - (1 / (1 + 0.09)¹⁰} / 0.09]

= $2,500 x [{1 - (1 /2.36736)} / 0.09]

= $2,500 x [{1 0.42241} / 0.09]

= $2,500 x 6.417657

= $16,044.14

“Hence, The Present Value $16,044.14”