Your uncle promises to give you $550 per quarter for the next five years starting today. How much...

Question:

Your uncle promises to give you $550 per quarter for the next five years starting today. How much is his promise worth right now if the interest rate is 8% compounded quarterly?

$9,173.14 $13,363.57 $13,630.84 $8,993.27

Present Value of Annuity Due

An annuity is a series of periodic payments that earn a fixed interest for a specified period. The present value of an annuity is the current worth of the periodic payments. The underlying concept is time value of money that a dollar in hand today is worth more than a dollar to be received in future.

Answer and Explanation: 1

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Since the first payment is starting today, we can use the formula for present value of annuity due to determine the current worth of the annuity.

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.


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