Find the present value of an ordinary annuity of $5,000 payments each made annually over 6 years and earning interest at 9% per year compounded annually.
A) $7.52
B) $22,429.59
C) $37,616.67
D) $8,385.50

Question

Find the present value of an ordinary annuity of $5,000 payments each made annually over 6 years and earning interest at 9% per year compounded annually. ​
A) $7.52
B) $22,429.59
C) $37,616.67
D) $8,385.50

Quizplus · Accepted Answer

The present value of an ordinary annuity can be calculated using the formula $PV = PMT \times \left[\frac{1 - (1 + r)^{-n}}{r}\right]$, where $PMT$ is the annual payment ($5,000), $r$ is the annual interest rate (9% or 0.09), and $n$ is the total number of payments (6 years). Plugging in these values gives $PV = 5000 \times \left[\frac{1 - (1 + 0.09)^{-6}}{0.09}\right] = 5000 \times 4.48592 = 22,429.59$.

Find the Present Value of an Ordinary Annuity of $5,000