How much you need for an ordinary annuity of $800 paid every 3 months for 8 years if you could invest your money elsewhere at an interest rate of 20% compounded quarterly?

Finance Mar 12, 2021

Expert Solution

Computation of Present Value of Annuity using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value of Annuity = ?

Rate = 20%/4 = 5% compounded quarterly

Nper = 8 years*4 quarters = 32 quarters

PMT = $800

FV = 0

Substituting the values in formula:

=-pv(5%,32,800,0)

PV or Present Value of Annuity = $12,642.14

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