Samuel just inherited an annuity. He will receive six equal annual payments of $18,000, beginning today. Assuming a 10% interest rate compounded annually, the present value today of all receipts is
A) $64,886.
B) $78,395.
C) $86,234.
D) $75,058.

Question

Quizplus · Accepted Answer

The present value of an annuity due (since payments begin today) can be calculated using the formula: $PV = P \times \left(\frac{1 - (1 + r)^{-n}}{r}\right) \times (1 + r)$, where $P$ is the payment amount, $r$ is the interest rate, and $n$ is the number of periods. Plugging in the values: $PV = 18,000 \times \left(\frac{1 - (1 + 0.10)^{-6}}{0.10}\right) \times (1 + 0.10)$, the calculation gives a present value of approximately $86,234, making option C correct.

Samuel Just Inherited an Annuity