Question

an investor will receive an annuity of $5,000 a year for 10 years. the first payment is to be received seven years from today. at a 10% discount rate, this annuity's worth today is closest to: $17342. $17825. $18212. $18956.

Answer 1

The present value of the annuity is $17,342.

Step-by-step explanation:

To determine the present value of an annuity, we can use the formula:

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

Where:

• PV is the present value of the annuity
• PMT is the annual payment
• r is the discount rate per period
• n is the number of periods

In this case, the annual payment is $5,000, the number of periods is 10, and the discount rate is 10%. Plugging these values into the formula, we get:

PV = 5000 * [1 - (1 + 0.10)^(-10)] / 0.10 = $17,342

Therefore, the annuity's worth today is closest to $17,342.