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10
10 .What is the present value of a 5-year annuity due with annual payments of $200, evaluated at a 10 percent interest rate?
Select one:
a. $833.97
b. $850.25
c. $900.25
d. $1000
Expert Solution
The amount is computed as shown below:
Present value = Annual payment x [ (1 – 1 / (1 + r)n) / r ]
= $ 200 x [ (1 - 1 / (1 + 0.10)5 ) / 0.10 ]
= $ 758.1573539
Since the annuity is due, hence the above amount shall be multiplied by (1 + r) as follows:
= $ 758.1573539 x 1.10
= $ 833.97 Approximately
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