Question

What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?a. $11,262.88b. $11,826.02c. $12,417.32d. $13,038.19e. $13,690.10

Answer 1

Answer:

a. 11,262.88

Explanation:

In this case we are using the formula of an annuity due which is an annuity that starts payment at the beginning of the period.

This formula is

PVannuity due = C * [(1 - ( 1 + i ) ^ {-n}/ i ] * (1 + i)

C = Payments $2,500

i = Interest rate 5.5%

n = Number of payments 5

PVannuity due = 2500 * [(1 - ( 1 + 0,05 ) ^ {-5}/ 0.05 ] * (1 + 0.05)