Question

What is the present value of $1,800 per year, at a discount rate of 14 percent if the first payment is received 6 years from now and the last payment is received 30 years from now?

Group of answer choices

$6,199.74

$6,238.87

$6,333.33

$6,425.25

$6,511.08

Answer 1

Present value of annuity= payment per period * [1-(1+i)^-n]/i  

i = interest rate per period

n = number of periods

Present value at thee end of year 5

= 1800 * [1-(1+0.14)^-25]/0.14

= 12371.27

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

=>

present value = 12371.27/1.14^5

= 6425.25