Need help with a Finance question about present values

timer Asked: Dec 1st, 2015
account_balance_wallet $5

Question Description

What is the present value of a 12 year $6,000 annuity due if the discount rate is 10%?

I got 44,970. Am I correct?

What would the present value be if a person received $900 in perpetuity and the interest rate is 16%? I got 5,625. Am I correct?

Tutor Answer

School: University of Maryland

Thank you for the opportunity to help you with your question!

12 year $ 6000 annuity due

= 6000 sum (k=0 to 11) (1/(1+i)^k)= 6000* (1-1/(1+i)^12)/(1-1/(1+i)) 

=6000/i* (1+i-1/(1+i)^11)

=  44970.37 

you are right 

900/i = 900/.16= 5625


Please let me know if you need any clarification. I'm always happy to answer your questions.

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Goes above and beyond expectations !

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