Question

What is the PV of an ordinary annuity with 7 annual payments of $10,000 each if the appropriate annual interest rate is 5%?

Answer 1

PV= $57,8563.73

Step-by-step explanation:

Giving the following information:

Number of periods= 7 years

Annual cash flow= $10,000

Interest rate= 5%

First, we need to calculate future value:

FV= {A*[(1+i)^n-1]}/i

A= annual cash flow

FV= {10,000*[(1.05^7) - 1]} / 0.05

FV= $81,420.08

Now, the present value:

PV= FV/(1+i)^n

PV= 81,420.08/1.05^7

PV= $57,8563.73