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17 December, 22:00

You expect to receive annual gifts of $1,000 at the end of Years 1 and 2 and $1,500 at the end of Years 3 and 4. What is the correct present value of multiple annuities formula if the rate is 6 percent?

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  1. 17 December, 22:16
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    PV of annuities = $3,021.53

    Explanation:

    The present value of the annuity would be as follows;

    First annuity of $1000:

    PV = A * (1 - (1+r) ^ (-n) / r

    PV = Present Value, r - rate of return, n-number of years

    PV = 1000 * (1 - (1.06) ^ (-2)

    PV = $1,833.39

    The second annuity

    PV = 1,500 x (1-1.06^ (-2) * 1.06^ (-2) = 1,188.140

    PV = $1,188.140

    PV of the annuities = $1,833.39 + $1,188.140 = $3,021.53

    PV of annuities = $3,021.53
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