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Find the present value of an annuity if the withdrawal is to be $500 per month for 36 months at 4% compounded monthly

User Blue Smith
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1 Answer

21 votes
21 votes

Find the present value of an annuity if the withdrawal is to be $500 per month for 36 months at 4% compounded monthly

Remember that

The formula for the present value of an ordinary annuity is equal to:


PV=P\lbrack((1-(1+r)^((-n)))/(r)\rbrack

where

PV is the present value

P is the periodic payment

r is the interest rate in decimal form

n is the number of times the interest is compounded per year

t is the number of years

In this problem we have

P=$500

t=36 months=3 years

r=4%=0.04

n=12

substitute given values


PV=500\lbrack((1-(1+0.04)^((-12)))/(0.04)\rbrack

PV=$4,692.54

User Dreijntjens
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