Question

Jessica Thomas expects to receive $13500 per year based on her decreased husband's contributions to a social security. Assume that she receives payments for 9 years and a rate of 6% per year and find the present value of this annuity

Answer 1

The present value of an annuity is :

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

where :

P = Present Value

PMT = Periodic payments

r = interest rate

n = number of periodic payments

From the problem, we have :

PMT = $13,500

r = 6% or 0.06

n = 9 years = 9 periodic payments

The present value is :

`\begin{gathered} P=13500*(1-(1)/((1+0.06)^9))/(0.06) \\ P=91822.846 \end{gathered}`

The answer is $91,822.85