Plimpton Has an Annuity Due That Pays $800 Per Year

question 104

Multiple Choice

Plimpton has an annuity due that pays $800 per year for 11 years.What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

• A)$5,296.27
• B)$5,693.49
• C)$6,291.26
• D)$8,800.00

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Definitions:

Holding Cash

The act of retaining liquid currency or cash equivalents by individuals or firms as a part of their financial strategy, to cover expenses or for speculative purposes.

Interest Rate

The percentage charged or paid for the use of money on a loan or investment, typically expressed as an annual percentage rate (APR).

Miller-Orr Model

A financial management model used to determine the optimal level of cash balance a company should maintain, considering the costs of cash management and the variability of cash flows.

Opportunity Rate

The expected rate of return on the best alternative investment option.