What is the present value of a $1,000 per year annuity for five years at an interest rate of 12 percent?
A)$6,352.85
B)$3,604.78
C)$567.43
D)$2,743.28

Question

Quizplus · Accepted Answer

To find the present value of the annuity, we need to use the annuity formula:

PV = PMT x (1 - 1 / (1 + r)^n) / r

where PV is the present value, PMT is the annual payment, r is the interest rate per period, and n is the number of periods.

In this case, PMT is $1,000, r is 12%, and n is 5. Plugging these values into the formula, we get:

PV = $1,000 x (1 - 1 / (1 + 0.12)^5) / 0.12
PV = $3,604.78

Therefore, the present value of the annuity is $3,604.78. Option B is the only choice that matches this result.

What Is the Present Value of a $1,000 Per Year