Question

What is the present value of the following series of payments: $300 made at the end of every year starting in year 1 and ending in year 30 EXCEPT there will be no payment of any kind at the end of year 10? Interest is 7% annual rate compounded annually.

Answer 1

Step-by-step explanation:

Annuity for 30 years is equivalent to annuity upto perpetuity.

PV = 300 / .07

= 4285.71

We shall have to deduct PV for 10 th year which is equal to

300 / (1.07)¹⁰

= 152.50

So required PV

= 4285.70 - 152.50

= 4133.2