The annually compounded discount rate is 5.5%. You are asked to calculate the present value of a 12-year annuity with payments of $50,000 per year. The first payment arrives in 6 months. Following payments arrive at one-year intervals, at 18 months, 30 months, etc.

• $428,580
• $430,926
• $442,618
• $445,212
• $451,250

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

Solution: C

[[math]] \begin{aligned} & \mathrm{PV}_{-0.5}=\frac{50000}{0.055}\left[1-\frac{1}{1.055^{12}}\right]=\$ 430,925.89 \\ & \mathrm{PV}_0=430,925.89 \times(1.055)^{0.5}=\$ 442,617.74\end{aligned} [[/math]]

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.