Find the present value of an ordinary annuity with deposits of $22,682 quarterly for 5 years at 5.6% compounded quarterly. What is the present value? (Round to the nearest cent.)
Find the present value of an ordinary annuity with deposits of $22,682 quarterly for 5 years at 5.6% compounded quarterly. What is the present value? (Round to the nearest cent.)
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:Find the present value of an ordinary annuity with deposits of $22,682 quarterly for 5 years at 5.6% compounded
quarterly.
What is the present value?
(Round to the nearest cent.)
Expert Solution
Concept:
The present value of an ordinary annuity is the present value of a series of equal payments made at regular intervals. It represents the value of the future payments today, discounted to account for the time value of money. The formula for calculating the present value of an ordinary annuity is:
Where:
- PV = present value
- PMT = payment amount
- r = discount rate or interest rate
- n = number of payments or periods
In other words, the present value of an ordinary annuity represents the amount that would have to be invested today at a given interest rate in order to generate the same series of payments. It helps to compare the value of different investment options, taking into account the impact of time and interest rates.
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