Question

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $2,400 at the end of Year 4 if the interest rate is 5%

Answer 1

The answer is "present value= 9952.87"

Explanation:

Given value:

`time = 4 -year \\\\annuity = \$2,250\\\\additional = \$2,400\\\\rate = 5 \%\\`

`present\ value=?`

Using formula:
`\bold{Present\ value = cash \ inflow} * \bold{Present \ value \ of \ discounting \ factor} \bold{( rate \% ,\ time \ period)}`
`=(\$2250)/(1.05)+(\$2250)/(1.05^2)+(\$2250)/(1.05^3)+(\$2250)/(1.05^4)+(\$2400)/(1.05^4)\\\\=\$2250 ((1)/(1.05)+(1)/(1.05^2)+(1)/(1.05^3)+(1)/(1.05^4)) + (2400)/(1.05^4)\\\\=(2250* 3.545950504)+(2400* 0.822702474)\\\\=\$9952.87 .`