Question

Find the present value of the ordinary annuity. Round the answer to the nearest cent.

Payments of $53 made quartely for 10 years at 8% compounded quartely.

Answer 1

1. Present value of Annuity

= Quarterly Payment *Present Value of Annuity for 10 years@ 8% compounded quarterly

= Quarterly Payment*[{1-1/(1+r)n }/r Here Quarterly Payment         =               $53 r = compounding rate     =8%/4quarters = 2% n=No. of compounding periods =10 years*4 quarters = 40 Years     = $53*[{1-1/(1+0.02)40 }/0.02      =$53*[{1-0.4529}/0.02      =$53*0.5471/0.02      =$53*27.3555     = $ 1449.84