The present value (PV) of an annuity can be calculated using the formula:
PV = P * ((1 - (1 + r)^(-n)) / r)
where:
P is the periodic payment ($800 in this case)
r is the interest rate per period (10% per year, so 0.1 in decimal form)
n is the number of periods (6 years)
Plugging in the values:
PV = 800 * ((1 - (1 + 0.1)^(-6)) / 0.1)
Calculating the expression within the parentheses:
(1 - (1 + 0.1)^(-6)) ≈ 0.487816
Dividing 800 by the calculated term and the interest rate:
PV ≈ 800 * 0.487816 / 0.1 ≈ 3902.53
Therefore, the present value of a $800 annuity payment over six years at a 10% interest rate is approximately $3,902.53.
I hope it can help you !
