Question

what is the present value of an annuity that pays $1 at the end of each year for the next 15 years with an annual effective interest rate 6.5% g

Answer 1

PV= $9.40

Step-by-step explanation:

Giving the following information:

Annual payment= $1

Interest rate= 6.5%

Number of periods= 15 years

First, we need to calculate the future value using the following formula:

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

A= annual payment

FV= {1*[(1.065^15) - 1]} / 0.065

FV= $24.18

Now, the present value:

PV= FV/(1+i)^n

PV= 24.18 / 1.065^15

PV= $9.40