Question

What is the present value of an annuity that pays $20,000 at the end 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. $8,644.45

D. $300,256.76

Answer 1

Solution:
	Answer is B. $129,777.72
Working Notes:
Notes:	Present value of annuity , the present value today of all the payment of annuity of tern years having discount rate .
	Present value of annuity = P x (1-(1/(1+i)^n))/i
	P= annual payment= $20,000
	i=interest rate = discount rate =8.75%
	n= no. Of years= 10
	Present value of annuity = ??
	Present value of annuity = P x (1-(1/(1+i)^n))/i
	Present value of annuity = 20000 x (1-(1/(1+ 8.75%)^10))/8.75%
	Present value of annuity = $129,777.7205
	Present value of annuity = $129,777.72
	Please feel free to ask if anything about above solution in comment section of the question.