The present value of an annuity due is $91704.00
We are to find the PV of the annuity.
Using the formula:
Present value of Annuity = Annuity Amount × Present Value Annuity Factor i.e. PVAF (n, r)
Where , Annuity Amount = $4,000
n = No. of periods = 7 years × 4 quarters per year = 28 periods but since the first payment is at beginning of the quarter, Then, n = 27 when considered for PVAF
r = 6.2% / 4 quarters = 1.55%,
PVAF(n0,r) when first payment is at beginning of n i.e. n0 = 1 + { [1-(1+r)^ -n0 ]/r
= 1 + { [1-(1+0.0155)^ {-27}]/0.0155 }
= 1 + [ (1 - 0.66015 ) ] / 0.0155]
= 1 + 21.926
= 22.926
PVAF(28,1.55%) = 22.926
Thus , Present Value of Annuity = $4,000 × 22.926 = $91704.00
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