ACCA FM · Chapter 6 · Question 7 of 10
What is the present value of $25,000 received at the end of each year for 5 years, at a discount rate of 8%? Use an annuity factor rounded to 3 decimal places.
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $99,825
Explanation
The 5-year annuity factor at 8% is 3.993. PV = 25,000 x 3.993 = $99,825. $107,800 would be the value if the payments were made at the start of each year, and $312,500 is the value of a perpetuity.
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