The present value of an ordinary annuity of $2,350 each year for eight years, assuming an opportunity cost of 11 percent, is ________ .
A) $18,800
B) $12,093
C) $27,869
D) $ 1,020

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity can be found using the formula:

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

Where PV is the present value, PMT is the payment each year, r is the opportunity cost or interest rate, and n is the number of periods.

Plugging in the given values, we get:

PV = 2350 x [1 - (1/(1+0.11)^8)] / 0.11

PV = $12,093

Therefore, the best choice is B.

The Present Value of an Ordinary Annuity of $2,350 Each