Question

what's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of year 4 if the interest rate is 5%?

Answer 1

present value = $7402.49

Step-by-step explanation:

given data

time = 4 year

ordinary annuity = $2,250

interest rate = 5%

solution

we get here present value that is for 4 year with end of year $1,550 will be as

present value =
`(C1)/((1+r)) +(C2)/((1+r)^2) +(C3)/((1+r)^3) +(C4)/((1+r)^4)` ...............1

here C1 to C3 is $2,250 and C4 is $1,550 and r is rate i.e 0.05

put here value and we will get as

present value =
`(2250)/((1+0.05)) +(2250)/((1+0.05)^2) +(2250)/((1+0.05)^3) +(1550)/((1+0.05)^4)`

present value = $7402.49