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You win an annuity of $21,940 annually for 5 years. If your bank

rate is 14%, what is the present value of your award?

1 Answer

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To calculate the present value of the annuity, you can use the formula for the present value of an ordinary annuity:

PV = A * (1 - (1 + r)^(-n)) / r

Where:

PV = Present Value

A = Annuity amount

r = Interest rate per period

n = Number of periods

In this case, the annuity amount (A) is $21,940, the interest rate (r) is 14% (or 0.14), and the number of periods (n) is 5 years. Plugging these values into the formula, we can calculate the present value (PV):

PV = $21,940 * (1 - (1 + 0.14)^(-5)) / 0.14

PV = $21,940 * (1 - 1.14^(-5)) / 0.14

PV = $21,940 * (1 - 0.6178) / 0.14

PV = $21,940 * 0.3822 / 0.14

PV = $6,516.96

Therefore, the present value of the annuity is approximately $6,516.96.

User Karthick Gk
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