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Present and future value tables of $1 at 3% are presented below:

-On January 1,2016,you are considering making an investment that will pay three annual payments of $10,000.The first payment is not expected until December 31,2019.You are eager to earn 3%.What is the present value of the investment on January 1,2016?
A)$28,286.
B)$25,886.
C)$26,662.
D)$27,300.

Question

Use the following to answer questions 
Present and future value tables of $1 at 3% are presented below:
 
-On January 1,2016,you are considering making an investment that will pay three annual payments of $10,000.The first payment is not expected until December 31,2019.You are eager to earn 3%.What is the present value of the investment on January 1,2016?
A)$28,286. 
B)$25,886. 
C)$26,662. 
D)$27,300.

Quizplus · Accepted Answer

The present value (PV) of the investment can be calculated using the formula for the present value of an annuity: PV = PMT / (1 + r)^n. The payments start in 2019, so the first payment is 4 years away. Calculate the PV for each payment and sum them: PV = $10,000/(1.03)^4 + $10,000/(1.03)^5 + $10,000/(1.03)^6 = $25,886.

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