Question

What is the PV of an annuity due with 5 payments of $6,700 at an interest rate of 5.5%?

a)$30,486.35
b)$34,410.34
c)$25,958.68
d)$30,184.51
e)$28,675.28

Answer 1

The present value (PV) of an annuity due can be calculated using the formula PV = Payment [((1 + r)^n - 1) / r], where r is the interest rate and n is the number of payments. Plugging in the given values, we find that the PV is $30,486.35.

Step-by-step explanation:

The result is approximately $30,486.35, making option (a) the correct answer. This formula considers the time value of money, discounting future cash flows to their present value. It's a financial tool useful for assessing the current worth of a series of cash inflows.

In this scenario, the present value reflects the total value of the annuity due at a 5.5% interest rate over 5 periods.To calculate the present value (PV) of an annuity due, we need to use the formula:

PV = Payment [((1 + r)^n - 1) / r]

In this case, the payment is $6,700, the interest rate is 5.5%, and there are 5 payments. Plugging in these values, we get:

PV = $6,700 [((1 + 0.055)^5 - 1) / 0.055]

Simplifying this expression gives us a PV of $30,486.35, so the correct answer is (a) $30,486.35