What is the present value of an ordinary annuity paying 200 per year for 7 years at 8%?

What is the present value of an ordinary annuity paying 200 per year for 7 years at 8%?

• A. 1100.00
• B. 900.00
• C. 1041.20
• D. 1200.00

Answer: (C)

The present value of an ordinary annuity is found by discounting each of the payments back to the present and summing them. Use the formula PV = PMT × [1 − (1 + r)^−n] / r, where PMT is the regular payment, r is the interest rate per period, and n is the number of periods. Here, PMT = 200, r = 0.08, n = 7. Compute (1 + r)^−n = 1.08^−7 ≈ 0.5835. Then [1 − 0.5835] / 0.08 ≈ 0.4165 / 0.08 ≈ 5.206. Multiply by the payment: 200 × 5.206 ≈ 1,041.20. So the present value is about 1,041.20.

The present value of an ordinary annuity is found by discounting each of the payments back to the present and summing them. Use the formula PV = PMT × [1 − (1 + r)^−n] / r, where PMT is the regular payment, r is the interest rate per period, and n is the number of periods.

Here, PMT = 200, r = 0.08, n = 7. Compute (1 + r)^−n = 1.08^−7 ≈ 0.5835. Then [1 − 0.5835] / 0.08 ≈ 0.4165 / 0.08 ≈ 5.206. Multiply by the payment: 200 × 5.206 ≈ 1,041.20.

So the present value is about 1,041.20.