What is the present value of a 3-year annuity of $250 if the discount rate is 6%

Question

What is the present value of a 3-year annuity of $250 if the discount rate is 6%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What is the present value of the annuity in (a) if you have to wait 2 years instead of 1 year for the first payment? (Round your intermediate and final answers to 2 decimal places.)

What is the present value of a 3-year annuity of $250 if the discount rate is 6%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

PVannuity=C*[(1-(1+i)^-n)/i]
PVannuity=250*[(1-(1+.06)^-3)/.06]
PVannuity=$668.25

==========================

B)   We can think of this question in the following way. We're now at the beginning of year 0. In one year (at the beginning of year 1), theannuity payments will start in exactly one more year. Therefore, oneyear from today (at the beginning of year 1), this annuity will be identical to the one in point a. Therefore, the value of the annuity one year from today will be $668.25 Now, in order to find the value of the annuity today, we simply discount this value by the interest rate one year. So the present value is

$668.25/(1.06)^1= $630.43

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.