Question

What is the present value of the following annuity? $4,936 every half year at the beginning of the period for the next 4 years, discounted back to the present at 8.33 percent per year, compounded semiannually.

Answer 1

This question requires application of time value of money concept about annuities.

Based on the question, the payment starts at the begginning of the period and hence is an annuity due. PV of annuity due is mathematically represented as:

For our question, P = $4,936, n = 8 (4 years * 2 semi-annual periods per year), r = 8.33% per year --> 4.165% per semi-annual period

Substituting values in this formula, we get:

PV = 4936 + 29,446.33

PV = $34,382.33 --> Answer