You have an annuity of equal annual end-of-the-year cash flows of $500 that begin two years from today and last for a total of ten cash flows.Using a discount rate of 4%,what are those cash flows worth in today's dollars?
A)$3,899.47
B)$4,055.45
C)$4,380.24
D)$5,000.00

Question

Quizplus · Accepted Answer

The present value of an annuity is calculated as follows:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the annual cash flowr is the discount raten is the number of cash flowsIn this case, we have:PMT = $500r = 4% = 0.04n = 10Plugging these values into the formula, we get:PV = $500 * [1 - (1 + 0.04)^-10] / 0.04PV = $500 * [1 - 0.675564] / 0.04PV = $500 * 0.324436 / 0.04PV = $4,055.45Therefore, the correct answer is B.

You Have an Annuity of Equal Annual End-Of-The-Year Cash Flows