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

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity formula is:

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

Where:
PV = Present Value
C = Cash Flow per period
r = Opportunity cost or discount rate
n = Number of periods

Using the given values:

PV = $2,350 * [(1 - (1 + 0.11)^(-8)) / 0.11]
PV = $2,350 * [(1 - 0.31799) / 0.11]
PV = $2,350 * 6.2372
PV = $14,668.82

Therefore, the present value of the annuity is $14,668.82, which corresponds to option D.

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