The present value of the annuity is $5197.14 approx.
Present value of annuity due=(1+rate)*Annuity[1-(1+interest rate)^-time period]/rate
=(1.075)*625[1-(1.075)[tex]^{12}[/tex]]/0.075
=(1.075)*625*7.735278275
which is equal to
=$5197.14(Approx).
The present value of an annuity is the present value of future annuity payments at a given rate of return or discount rate. The higher the discount rate, the lower the present value of the annuity.
The formula for determining the present value of an annuity is: PV = individual annuity payments multiplied by P = PMT * [1 - [(1 / 1+r)^n] / r] equals: P = present value of annuity flows. PMT = dollar amount of each payment. r = discount or interest rate.
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