What is the present value today of an ordinary annuity cash flow of $3,000 per year for forty years at an interest rate of 10.0% per year if the first cash flow is six years from today?
A) $120,000.00
B) $1,327,777.67
C) $45,138.89
D) $33,730.40
Answer: D
Explanation: D) Although this problem is not directly addressed in the text, its intended effect is to reinforce the idea of present value. In this kind of problem, the student must find a present value in the future, and then discount that renamed future value back to the present value at time zero.
PV = PMT × / (1 + r)n = $3,000 × / (1.06)5 = $33,730.40.
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