SOLUTION: Antonia receives a $10,000 benefit payment at the end of each year. She can invest these payments in an account yielding 4% interest, compounded annually. Assuming she just receive
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Question 1151154: Antonia receives a $10,000 benefit payment at the end of each year. She can invest these payments in an account yielding 4% interest, compounded annually. Assuming she just received this year’s payment, what is the present value of her next five payments?
A.
$20,352
B.
$41,253
C.
$44,518
D.
$44,815
Answer by MathLover1(20849) (Show Source): You can put this solution on YOUR website!
Antonia receives a $ benefit payment at the end of each year.
She can invest these payments in an account yielding % interest, compounded annually. Assuming she just received this year’s payment, what is the present value of her next five payments?
a $ benefit payment
%= interest
n=5 years
Because the equal payments occur at the end of each year, we know we have an ordinary annuity.
The equation for calculating the present value of an ordinary annuity is:
This PVOA calculation tells you that receiving $ today is equivalent to receiving $ at the end of each of the next five years, if the time value of money is % per year. If the % rate is Antonia's required rate of return, this tells you that Antonia could pay up to $ for the five-year annuity.
Answer: C. $
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