Find the present value of the ordinary annuity. If the amount of $500 of deposit in an account annually with an interest rate 9% per year for 25 years.

glasskerfu 2020-10-23 Answered
Find the present value of the ordinary annuity.
If the amount of $500 of deposit in an account annually with an interest rate 9% per year for 25 years.
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Expert Answer

Laaibah Pitt
Answered 2020-10-24 Author has 98 answers
The present value of an annuity is calculated by the formula,
PV=PMT(1  (1 + i)ni)
Where PV is the present value
PMT is the amount of periodic payment i is the periodic interest rate, i=rm
n is the total number of periods n=mt
r is the annual interest rate in decimals m number of compounding period per year.
Step 2
Here,
PMT=$500
Compounded annually, m=1
Thus, the interest rate i=r=0.09 in decimals,
And the number of period n=25 years.
Substituting these values in the formula of the present value of an annuity,
PV=500(1  (1 + 0.09)250.09)
=500(1  (1.09)250.09)
=4911.2898
Rounding to the nearest cent,
PV=4911.29 dollars
Therefore, the present value of an annuity is $ 4911.29.
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