10) An annuity is set up that will pay $1500 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 9%? A) $5776 B) $9626 C) $11,551 D) $13,476
10) An annuity is set up that will pay $1500 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 9%? A) $5776 B) $9626 C) $11,551 D) $13,476
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:10) An annuity is set up that will pay $1500 per year for ten years. What is the present value
(PV) of this annuity given that the discount rate is 9%?
A) $5776
B) $9626
C) $11,551
D) $13,476
Expert Solution
Step 1
Solution:-
When an equal amount is paid each period, it is called annuity.
Present value of annuity = PMT x {1- [1/(1+r)n]} / r
where, PMT = equal periodic payment
r = periodic discount rate
n = number of periods
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