The problem asks to find the present value of a 5-year annuity due with periodic cash flows of $500 each year, given an interest rate of 8 percent. The final answer should be rounded to the nearest whole number.
Applied MathematicsFinancial MathematicsPresent ValueAnnuity DueCompound InterestTime Value of Money
2025/7/25
1. Problem Description
The problem asks to find the present value of a 5-year annuity due with periodic cash flows of $500 each year, given an interest rate of 8 percent. The final answer should be rounded to the nearest whole number.
2. Solution Steps
Since this is an annuity due, the payments are made at the beginning of each period. The formula for the present value of an annuity due is:
Where:
is the present value of the annuity due
is the periodic payment
is the interest rate per period
is the number of periods
In this case:
Plugging in the values:
Rounding to the nearest whole number, the present value is .
3. Final Answer
2156