Question

What is the present value of an annuity that pays $20,000 ON THE FIRST DAY of each year for the next ten years if the discount rate is 8.75%? Group of answer choices

A. $141,133.27

B. $129,777.72

C. $326,529.23

D. $300,256.76

Answer 1

Given

Annual payments = 20000

Nper= 10 years

Rate= 8.75%

We can calculate present value of the annuity using excel function:

Present value of annuity = pv(rate,nper, pmt,fv,type)

Here we take type as1 because       annuity payments are made at the beginning of the year

Using excel :

Present value of annuity = pv(8.75%,10,-20000,0,1)     

                     = $141133.27   

Option A is correct