With a monthly annuity payment of $175, a 12 percent APR, and a payment plan spanning 5 years, what is the present value of the annuity? Round your answer to the nearest hundredth.

1 answer

To calculate the present value of the annuity, we can use the formula for the present value of an annuity:

PV = PMT * [(1 - (1 + r)^-n) / r]

Where:
PV = Present Value of the annuity
PMT = Monthly annuity payment ($175)
r = Monthly interest rate (APR / 12 = 0.12 / 12 = 0.01)
n = Number of payments (5 years * 12 months/year = 60 payments)

Plugging in the values:

PV = $175 * [(1 - (1 + 0.01)^-60) / 0.01]
PV = $175 * [(1 - (1.01)^-60) / 0.01]
PV = $175 * [(1 - 0.54703134793) / 0.01]
PV = $175 * [0.45296865207 / 0.01]
PV = $175 * 45.296865207
PV = $7924.15

Therefore, the present value of the annuity, given a monthly annuity payment of $175, a 12 percent APR, and a payment plan spanning 5 years, is $7924.15.