Determine the Present Value of an Annuity If It Pays

question 5

Multiple Choice

Determine the present value of an annuity if it pays out $2,500 at the end of each year in perpetuity, assuming that the interest rate is 8% compounded annually.

• A)$24,550
• B)$34,050
• C)$31,250
• D)$29,450
• E)$30,100

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Definitions:

Opportunity Cost

The cost of choosing one option over another, typically represented by the benefits that could have been gained by choosing the alternative.

Depletable Resource

A natural resource that can be diminished or exhausted by use, such as fossil fuels, minerals, or forests.

Extraction Cost

The expenses associated with the removal of raw materials from their natural setting for use or sale.

Non-Monetary Benefits

Advantages or perks associated with a job or situation that are not in the form of money, such as health insurance or flexible working hours.