Present Value of Simple Ordinary Annuities

You have approached Which Bank for a loan to buy a house. The bank offers you a $400 000 loan, repayable in equal monthly payments at the end of each month for the next 20 years. If the interest rate on the loan is 9%/a, compounded monthly, your monthly repayment (to the nearest dollar) will be:

• A. $1831

• B. $3599

• C. $2821

• D. $4667

 $PV\ =\ \frac{R\left[1-\left(1+i\right)^{-n}\right]}{i}$ 

 what is the function of this formula?

• To find the terms of investment 

• To find the present value of a simple ordinary annuity

• To find the present value of a compound interest problem

• To find the past value of an annuity

The future or present value of an amount depends upon:

• the annual interest rate.

• the number of years

• number of times per year compounding occurs

• all of the above

A debtor needs to make $1,000 annual payments on her loan for five years to extinguish her debt. In this problem, should the present value be more than, less than, or equal to $5,000?

• more than $5000

• less than $5000

• equal to $5000

• No option to choose

John inherited an ordinary annuity that pays him $1,000 every 3 months for three years. What is the present value of this annuity if the money is earning interest at a rate of 16%/a compounded quarterly?

• $9,385.07

• $6,373.02

• $10,999.03

• $5,678.90