Question

Question 3 An annuity, starting now (that is you receive immediately the first payment), pays 10 Euros with annual frequency, for 150 times. What is the present value of the annuity if the interest rate is 0.15%? A. 1,344.34 B. 1,432.08 C. 1,500.00 D. 1,643.22 E. I choose not to answer

Answer 1

We can use present value of annuity due formula:

$\textup{PVAD} = A + A\left [ \frac{(1+i)^{n-1}-1}{i(1+i)^{n-1}} \right ]$

Where,
PVAD = Present Value of Annuity Due
A = Periodic payment
i = rate of interest
n = number of years

$\textup{PVAD} = 10 + 10\left [ \frac{(1+0.0015)^{150-1}-1}{0.0015(1+0.0015)^{150-1}} \right ]$

$= 10 + 10\left [ \frac{(1.0015)^{149}-1}{0.0015(1.0015)^{149}} \right ]$

$= 10 + 10\left [ \frac{0.250236261}{0.001875354} \right ]$

If you like my answer, give me a thumbs up!!