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What is the present value of the following annuity? $4,012 every year at the end of the year for the next 9 years, discounted back to the present at 4
What is the present value of the following annuity?
$4,012 every year at the end of the year for the next 9 years, discounted back to the present at 4.68 percent per year, compounded annually?
Round the answer to two decimal places. INPUT FORMULA
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 = 4.68%
Nper = 9 years
PMT = $4,012
FV = 0
Substituting the values in formula:
=-pv(4.68%,9,4012,0)
PV or Present Value of Annuity = $28,927.37
Or we can calculate it as follows:
Present Value of Annuity = Annuity*[1-(1+Interest Rate)^-Time Period]/Rate
=4012*[1-(1.0468)^-9]/0.0468
=4012*7.21021204
=$28927.37
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