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What is the present value of an ordinary annuity that pays $800 per year for 7 years, assuming the annual discount rate is 4%?

User KKS
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1 Answer

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Final answer:

The present value of the annuity is approximately $5,050.62.

Step-by-step explanation:

To calculate the present value of an ordinary annuity, we use the present value of an annuity formula.

The formula is:

PV = PMT x (1 - (1 + r)^-n) / r

Where:

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

In this case, the payment per period is $800 for 7 years, and the annual discount rate is 4%. Plugging these values into the formula, we get:

PV = $800 x (1 - (1 + 0.04)^-7) / 0.04 ≈ $5,050.62

User CmosBattery
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