Find the present value (PV) of the annuity with each payment of $3500 at the end of each year for 3 years in an account that pays 6% compounded annually.
PV = 3500( 1.06^3 - 1)/.06
= ...
that'snot how you solve
hey I got 11,142.6 and it told me it was wrong. I am using educosoft.c for my math class so it lets you know if your answer is incorrect, so can you tell me what answer you get from the way you solve if it's the same as mine then you're are wrong. I truly need help with this problem
Sorry, I was using the "Amount" formula
should have been:
PV = 3500( 1 - 1.06^-3)/.06
= 9355.54
thanks for your help
To find the present value (PV) of an annuity, we need to discount each future payment back to its present value. The formula for the present value of an annuity is:
PV = PMT * (1 - (1 + r)^-n) / r
Where:
PV = Present Value
PMT = Payment per period
r = Interest rate per period
n = Number of periods
In this case, the payment per period (PMT) is $3500, the interest rate per period (r) is 6% or 0.06, and the number of periods (n) is 3.
Step 1: Calculate the discount factor.
The discount factor is calculated using the formula: (1 - (1 + r)^-n) / r
Discount factor = (1 - (1 + 0.06)^-3) / 0.06
= (1 - (1.06)^-3) / 0.06
= (1 - 0.8396) / 0.06
= 0.1604 / 0.06
= 2.67333
Step 2: Calculate the present value (PV).
The present value (PV) is calculated using the formula: PV = PMT * Discount factor
PV = $3500 * 2.67333
PV = $9381.165
Therefore, the present value (PV) of the annuity with each payment of $3500 at the end of each year for 3 years in an account that pays 6% compounded annually is $9381.165.