Question

What is the present value of receiving $500 each year for three years at an interest rate of 12 percent, compounded annually? (The first receipt is at the end of year)

Answer 1

present value = (annual receipt/interest rate)*[1 - 1/(1+interest rate)no. of years]

present value = ($500/0.12)*[1 - 1/(1+0.12)3] = $4,166.666666666667*(1 - 1/1.123) = $4,166.666666666667*(1 - 1/1.404928‬) = $4,166.666666666667*(1 - 0.71178024781341107871720116618076‬) = $4,166.666666666667*0.28821975218658892128279883381924‬ = $1,200.92

the present value of receiving $500 each year for three years at an interest rate of 12 percent, compounded annually is $1,200.92.