An annuity pays 7300 dollars on January 1 of each year, starting on January 1, 2000. If 16 payments are made and the effective rate of interest is 8.5 percent, what is the present value of the annuity on January 1, 1999?
From P R[1 - (1+i)^(-n)]/i where
P = present value
R = the periodic payment
i = the decimal interest per compounding period = I/100 assuming interest compounded anually and
n = the number of interest bearing periods.
Therefore,
P = 7300[1 - 1.0070833^(-16)]/.0070833
p = $110,056