Question

Assume that, starting next year, you will make deposits of \$210 each year into a savings...

Assume that, starting next year, you will make deposits of \$210 each year into a savings account. You will make a total of 5 annual deposits. If the savings account interest rate is 9%, what is the present value of this savings plan? Enter your answer in dollars, rounded to the nearest cent (2 decimals).

Present value of the savings plan

The Present Value of an Ordinary Annuity is calculated by using the following formula

Present Value of an Ordinary Annuity = P x [{1 - (1 / (1 + r) n} / r]

Annual Payment (P) = \$210 per year

Annual Interest Rate (r) = 9% per year

Number of years (n) = 5 Years

Therefore, the Present Value of an Ordinary Annuity = P x [{1 - (1 / (1 + r) n} / r]

= \$210 x [{1 - (1 / (1 + 0.09)5} / 0.09]

= \$210 x [{1 - (1 / 1.538624)} / 0.09]

= \$210 x [(1 – 0.649932) / 0.09]

= \$210 x [0.350069 / 0.09]

= \$210 x 3.889651

= \$816.83

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