Compute the Present Value of an Ordinary Annuity That Pays

question 199

Multiple Choice

Compute the present value of an ordinary annuity that pays $13,000 per year for 15 years at 10%. Present value of ordinary annuity of $1:
$$\begin{array} { | c | c | c | c | c | c | } \hline & 7 \% & 8 \% & 9 \% & 10 \% & 12 \% \\\hline 11 & 7.499 & 7.139 & 6.805 & 6.495 & 5.938 \\\hline 12 & 7.943 & 7.536 & 7.161 & 6.814 & 6.194 \\\hline 13 & 8.358 & 7.904 & 7.487 & 7.103 & 6.424 \\\hline 14 & 8.745 & 8.244 & 7.786 & 7.367 & 6.628 \\\hline 15 & 9.108 & 8.559 & 8.061 & 7.606 & 6.811 \\\hline\end{array}$$

• A) $98,878
• B) $99,745
• C) $97,578
• D) $100,178

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Definitions:

Annuity A

Represents a financial product that promises to pay the holder a fixed stream of payments over a specified period of time.

APR

Annual Percentage Rate, a measure used to calculate the cost of borrowing, including interest and other fees, shown as a yearly rate.

EAR

Ear is the acronym for Effective Annual Rate, which measures the real return on an investment or the real interest rate on a loan, accounting for compounding over a specified period.

Monthly Stream

A monthly stream often refers to consistent or recurring flows of income, payments, or data that occur every month.