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The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,000 each with the first payment
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13 votes
13 votes
The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,000 each with the first payment to be made one year from today. If the discount rate is 6%, what is the present value of the furniture payments

User Zbestzeus
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1 Answer

19 votes
19 votes

Answer: $2,673

Step-by-step explanation:

The amounts to be paid are constant so this is an annuity. The present value will therefore be the present value of an annuity.

Present value of annuity = Annuity * Present value interest factor of annuity, 3 periods, 6%

= 1,000 * 2.6730

= $2,673

User Tuukka Haapaniemi
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