An annuity pays $500 per year for 8 years beginning one year from today. remaining value...

Question

Question

An annuity pays $500 per year for 8 years beginning one year from today.
remaining value of the annuity immediately before the fourth $500 payment? Assume an interest rate of 2% APR.

The correct answer is $2,403. However, I just don't know how to get to it.

Answer 1

Answer #1

Immediately before the fourth payment, there are 5 annual payments left with the first payment to occur immediately.

The present value of these remaining 5 payments is calculated using PV function in Excel ;

rate = 2%

nper = 5

pmt = 500

fv = 0 (There is no amount receivable at the end of the period, apart from the annuity payment)

type = 1 (the first of the 5 remaining payments occurs immediately, hence it is like an annuity due with 5 payments)

PV is calculated to be $2,403.83.

- fo A1 A 1 ($2,403.86) =PV(2%,5,500,0,1) D E B C

Answer 2

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