Question

You expect to receive annual gifts of $1,000 at the end of Years 1 and 2 and $1,500 at the end of Years 3 and 4. What is the correct present value of multiple annuities formula if the rate is 6 percent?

Answer 1

Answer:

PV of annuities =$3,021.53

Explanation:

The present value of the annuity would be as follows;

First annuity of $1000:

PV = A × (1- (1+r)^(-n)/r

PV = Present Value , r- rate of return, n-number of years

PV = 1000× (1- (1.06)^(-2)

PV= $1,833.39

The second annuity

PV = 1,500 x (1-1.06^(-2)× 1.06^(-2)= 1,188.140

PV = $1,188.140

PV of the annuities    = $1,833.39 + $1,188.140 =$3,021.53

PV of annuities =$3,021.53