Solution:
The present value of n is written as
See Also
What Is Present Value in Finance, and How Is It Calculated?Present Value Calculator, BasicPresent Value of $1Present Value of an Annuity: Meaning, Formula, and ExamplePV = P[1 - (1 + r)-n]/r
Where,
P = Value of each payment
r = Rate of interest per period in decimal
n = Number of periods
Given, P = $900, n = 5, r = 8%
PV = 900[1 - (1 + (8/100))-5] / (8/100)
= 900[1 - (1 + 0.08)-5] / (0.08)
= 900[1 - (1.08)-5] / (0.08)
= 900[1 - 0.68] / (0.08)
= 900(0.32) / (0.08)
= 900(4)
= $3600
Therefore, the present value is $3600.
Summary:
The present value of a $900 annuity payment over five years if interest rates are 8 percent is $3600.
