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Sam expects to receive $2,000 at the end of each year for 3 years. The annuity has an interest rate of 12%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is

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vijayhalder031

The inception of annuity is $4850

An insurance contract known as a annuity is one that financial institutions sell with the goal of paying out invested money as a fixed income stream in the future.

Given Initial Cash flow is $2000

The rate of interest is 12%

We need to calculate the present value of the growing annuity that is  

The inception of the annuity

Present value of the growing annuity can be calculated by

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

Where , C = $2000

r = 12%

n = 3

Substituting the values in the formula

PV = 2000/0.12[1-(1/1+0.12)^3

PV = 2000/0.12 (1-0.709)

PV = 2000/0.12 (0.291)

PV = 1,666.66 (0.291)

PV = $4850

Hence the present value of the growing annuity is $4850

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