Question

A $5-$year ordinary annuity has a present value of $\$1,000$. If the interest rate is $8$ percent, the amount of each annuity payment is closest to which of the following?

• A. 250.44$
• B. 231.91$
• C. 181.62$
• D. 184.08$
• E. 170.44$

Answer 1

The correct option is A 250.44\Rightarrow$Wehave,$V=\$1000r=8\%=0.08$ and $n=5$

$\Rightarrow$ $V=\frac{A}{r}\times [1-(1+r{)}^{-n}]$

$\Rightarrow$ $A=\frac{V\times r}{1-(1+r{)}^{-n}}$

$\Rightarrow$ $A=\frac{1000\times 0.08}{1-(1.08{)}^{-5}}$

$\therefore$ $A=\$250.44$