Final answer:
The present value of a $1,260 per year annuity for five years at an interest rate of 12 percent is determined by the present value annuity formula, using the specific parameters for payment amount, interest rate, and time period.
Step-by-step explanation:
The question asks us to calculate the present value of an annuity with annual payments of $1,260 for five years at an interest rate of 12 percent. The formula for present value of an annuity is PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the interest rate, and n is the number of periods.
To find the present value (PV), we use the given values: PMT = $1,260, r = 0.12, and n = 5. Substituting these into the formula gives us PV = $1,260 × [(1 - (1 + 0.12)^-5) / 0.12]. After computing, we find the present value of the annuity. It's important to use a financial calculator or spreadsheet software for accurate calculations.