Question

An annuity is set up that will pay $1500 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 6%

Answer 1

Answer: The present value of the given annuity is $ 11040.13.

Step-by-step explanation:

To calculate the present value for a given annuity, we use the equation:

`PV=PMT* ((1-((1)/(1+r^n))))/(r)`

where,

PV = present value

PMT = fixed annuity amount = $1500

r = rate of interest = 6 % = 0.06

n = time period = 10 years

Putting values in above equation, we get:

`PV=\$ 1500* ((1-((1)/(1+0.06^(10)))))/(0.06)\\\\PV=\$ 1500* ((1-((1)/(1.06^(10)))))/(0.06)\\\\ PV=\$ 1500* 7.36\\\\ PV=\$ 11040.13`

Hence, the present value of the given annuity is $ 11040.13.