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What is the present value of a $690 annuity payment over five years if interest rates are 9 percent?

Question:

What is the present value of a $690 annuity payment over five years if interest rates are 9 percent?

Present value:

The present value of a future payment gives an idea of its worth today. Future payments can be for a fixed period of time, called annuity or for an infinite time period, called perpetuity.

Answer and Explanation:

Present Value of $690 annuity payment over five years is $177.39

Annuity factor = ( 1 - (1 / (1 + r)^n)) / r (where r is the interest rate per year and n is the number of years)
= ( 1 - (1 / (1 + 0.09)^5)) / 0.09
= 0.25709

Present Value of $690 annuity payment over five years = $690 * 0.25709
= $177.39


Learn more about this topic:

How to Calculate the Present Value of an Annuity

from Business 110: Business Math

Chapter 8 / Lesson 3
8.8K

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