The factor for the present value of an annuity for 6 years at 10% is 4.3553. This implies that an annuity of six $2,000 payments at 10% is the equivalent of $8,710.60 today.

Question

Quizplus · Accepted Answer

The present value of an annuity formula is PV = PMT x [(1 - (1 / (1 + r)n)) / r], where PV is the present value, PMT is the payment amount, r is the interest rate per period, and n is the number of periods. Using this formula with the given information, we get:

PV = $2,000 x [(1 - (1 / (1 + 0.10)6)) / 0.10] = $8,710.60 (rounded)

Since this is the same as the amount implied by the factor of 4.3553, the statement is true.

The Factor for the Present Value of an Annuity for 6