What is the present value of an annual annuity payment of $7,000 made for 12 years with a required return of 5% per year with the first payment starting today?
A) $65,145
B) $ 3,898
C) $62,043
D) $11,200

Question

Quizplus · Accepted Answer

The present value of an annuity due (since the first payment starts today) can be calculated using the formula for the present value of an annuity due: $PV = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right) \times (1 + r)$, where PMT is the annual payment ($7,000), r is the annual interest rate (5% or 0.05), and n is the number of periods (12 years). Plugging in the values, we get $PV = $7,000 \times \left(\frac{1 - (1 + 0.05)^{-12}}{0.05}\right) \times (1 + 0.05)$, which calculates to approximately $65,145, making option A the correct choice.

What Is the Present Value of an Annual Annuity Payment