Question

What is the present value of an ordinary annuity that pays $65 at the end of each of the next 19 years, plus $1,000 at the end of the 19th year?

Answer 1

Result are below.

Step-by-step explanation:

Giving the following information:

Annual payment= $65

Number of periods= 19 years

I will assume an interest rate of 8%.

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

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

A= annual payment

FV= {65*[(1.08^19) - 1]} / 0.08

FV= $2,694 + 1,000

FV= $3,694

Now, the present value:

PV= FV/(1+i)^n

PV= 3,694 / (1.08^19)

PV= $855.95