Ask Question
30 October, 04:10

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. Which of these is the correct present value of multiple annuities formula if the rate is 6 percent

+4
Answers (1)
  1. 30 October, 04:13
    0
    Total Present Value = 4280.962

    Explanation:

    The correct Present Value formulae

    PV of annuity formula:

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

    PV - Present value of annuity'

    A - Annual cash flow

    r - discount rate per period

    n - number of period

    First set of cash inflows i. e 1,000 for year 1 and 2

    1,000 * (1 - 1.06^ (-2)) / 0.06

    PV = 1,833.39

    Second set of cash flows i. e year 3 and 4

    Year 3 and Year 4

    1,500 * (1 - 1.06^ (-2)) / 0.06 * 1.06^ (-2)

    = 2,447.569

    Total PV = 1,833.39 + 2,447.569 = 4280.962086

    Total Present Value = 4280.962
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “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. Which of these is the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers