Question

Suppose the interest rate is 6.8% APR with monthly compounding. What is the present value of an annuity that pays $95 every three months for six years? (Note: Be careful not to round any intermediate steps less than six decimal places.) The present value of the annuity is $____. (Round to the nearest cent).

Answer 1

Three monthly effective interest rate = (1+0.068/12)^3
	=1.709652
Present Value Of Annuity
c= Cash Flow	95
i= Interest Rate	1.70965%
n= Number Of Periods =6*4=	24
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $95[ 1-(1+0.0170965153)^-24 /0.0170965153]
= $95[ 1-(1.0170965153)^-24 /0.0170965153]
= $95[ (0.3343) ] /0.0170965153
= $1,857.35