Question

5. What is the present value of 15 annual installments of $2000 paid at the end of each year and beginning at the end of the first year if the interest rate is 6.35%

Answer 1

Answer:

PV= $19,987.89

Explanation:

Giving the following information:

Annual payments= $2,000

Number of periods= 15 years

Interest rate= 6.35%

To calculate the present value, first, we need to calculate the future value using the following formula:

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

A= annual payment

FV= {2,000*[(1.0635^15) - 1]} / 0.0635

FV= $47,812.25

Now, the present value:

PV= FV/(1+i)^n

PV= 47,812.25 / 1.0635^15

PV= $19,987.89