Question

What is the present value of a 3-year annuity of $150 if the discount rate is 7%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

PV= $393.65

Explanation:

Giving the following information:

Cash flow= $150

Number of periods= 3 years

Interest rate= 7%

To calculate the present value of the annuity, first, we need to determine the future value:

FV= {A*[(1+i)^n-1]}/i

A= annual cash flow

FV= {150*[(1.07^3) - 1]} / 0.07

FV= $482.24

Now, the present value:

PV= FV/(1+i)^n

PV= 482.24/1.07^3

PV= $393.65