What is the pv of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%? a. $11,262.88b. $11,826.02c. $12,417.32d. $13,038.19e. $13,690.10

a. 11,262.88

Explanation:

In this case we are using the formula of an annuity due which is an annuity that starts payment at the beginning of the period.

This formula is

PVannuity due = C * [(1 - ( 1 + i ) ^ {-n}/ i ] * (1 + i)

C = Payments $2,500

i = Interest rate 5.5%

n = Number of payments 5

PVannuity due = 2500 * [(1 - ( 1 + 0,05 ) ^ {-5}/ 0.05 ] * (1 + 0.05)

month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23

answer; capital structure decision;