Question

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).

Answer #1

**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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