Suppose the present value of a 2-year ordinary annuity is $100.If the discount rate is 10 percent,what must be the annual cash flow?
A) $65.45
B) $82.64
C) $57.62
D) $53.78
E) $79.22

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an ordinary annuity to solve this problem:

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

where PV is the present value, C is the annual cash flow, r is the discount rate, and n is the number of years.

Plugging in the given values, we have:

$100 = C[(1 - (1+0.10)^-2)/0.10]

Simplifying and solving for C, we get:

C = $57.62

Therefore, the correct answer is choice C.

Suppose the Present Value of a 2-Year Ordinary Annuity Is