What Is the Present Value of an Ordinary Annuity Consisting

question 31

Multiple Choice

What is the present value of an ordinary annuity consisting of 5 annual payments of $1,000 with an interest rate of 8% p.a. ,with the first payment occurring in 5 years' time?

• A)$4,918.64
• B)$4,992.71
• C)$2,717.37
• D)$3,696.95

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Definitions:

Social Cost

The total cost to society as a whole, including both private costs incurred by firms or individuals and external costs imposed on others.

Free Riders

A person who receives the benefit of a good without paying for it. Because it is often virtually impossible to restrict the consumption of public goods to those who pay, these goods are subject to free-rider problems.

Public Good

A commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization.

Private Firms

Businesses owned and controlled by individuals or groups of individuals, as opposed to being owned by the government.