Final answer:
To find the present value of an ordinary annuity that pays $100 for 20 years at a 10% interest rate, the present value formula is applied. The calculations reveal that the present value is approximately $851.36, which is option (b).
Step-by-step explanation:
The present value of an ordinary annuity can be calculated using the formula for the present value of an annuity, which considers the regular payments (annuity), the interest rate, and the number of periods. The given problem involves finding the present value of an ordinary annuity that pays $100 per year for 20 years at an interest rate of 10 percent per year.
The formula for the present value of an ordinary annuity is:
PV = Pmt × [(1 - (1 + r)^-n) / r]
When we apply these values to the formula, we get:
PV = $100 × [(1 - (1 + 0.10)^-20) / 0.10]
Using a calculator, the calculation yields a present value of approximately $851.36. Therefore, the most accurate answer is (b) $851.36.