If a 5-year regular annuity has a present value of $1,000,and if the interest rate is 10 percent,what is the amount of each annuity payment?
A) $240.42
B) $263.80
C) $300.20
D) $315.38
E) $346.87

Question

Quizplus · Accepted Answer

Using the formula for present value of an annuity:

PV = Pmt * [(1 - (1 + r)^-n) / r]

where PV = $1,000, r = 10%, and n = 5 years.

Substituting the values:

1,000 = Pmt * [(1 - (1 + 0.1)^-5) / 0.1]

1,000 = Pmt * [(1 - 0.6209) / 0.1]

1,000 = Pmt * 3.7901

Pmt = 1,000 / 3.7901

Pmt = $263.80

Therefore, the answer is B.

If a 5-Year Regular Annuity Has a Present Value of $1,000,and