Question

what's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $1,550 at the end of year 4 if the interest rate is 5%?

Answer 1

Answer:

present value = $7402.49

Explanation:

given data

time = 4 year

ordinary annuity = $2,250

interest rate = 5%

solution

we get here present value that is for 4 year with end of year $1,550 will be as

present value = $\frac{C1}{(1+r)} +\frac{C2}{(1+r)^2} +\frac{C3}{(1+r)^3} +\frac{C4}{(1+r)^4}$    ...............1

here C1 to C3 is $2,250 and C4 is $1,550 and r is rate i.e 0.05

put here value and we will get as

present value = $\frac{2250}{(1+0.05)} +\frac{2250}{(1+0.05)^2} +\frac{2250}{(1+0.05)^3} +\frac{1550}{(1+0.05)^4}$  

present value = $7402.49