The present value factor for a five-year ordinary annuity at 4% interest is approximately:

The present value factor for a five-year ordinary annuity at 4% interest is approximately:

• A. 3.50
• B. 4.100
• C. 4.800
• D. 4.452

Answer: (D)

Evaluating the present value today of a series of equal payments over several years uses the annuity-immediate present value factor, a-angle-n at the given interest rate. This factor represents how much each dollar of periodic payment is worth in today’s terms when payments occur at the end of each period. For a five-year ordinary annuity at 4% interest, the factor is calculated as a-angle-n = [1 − (1 + i)^−n] / i. Plugging in i = 0.04 and n = 5: - (1.04)^5 ≈ 1.21665 - (1.04)^−5 ≈ 0.82193 - 1 − 0.82193 ≈ 0.17807 - 0.17807 / 0.04 ≈ 4.4518 So the present value factor is about 4.452. This is the amount by which each period’s payment would be multiplied to obtain its present value today.

Evaluating the present value today of a series of equal payments over several years uses the annuity-immediate present value factor, a-angle-n at the given interest rate. This factor represents how much each dollar of periodic payment is worth in today’s terms when payments occur at the end of each period.

For a five-year ordinary annuity at 4% interest, the factor is calculated as a-angle-n = [1 − (1 + i)^−n] / i. Plugging in i = 0.04 and n = 5:

• (1.04)^5 ≈ 1.21665

• (1.04)^−5 ≈ 0.82193

• 1 − 0.82193 ≈ 0.17807

• 0.17807 / 0.04 ≈ 4.4518

So the present value factor is about 4.452. This is the amount by which each period’s payment would be multiplied to obtain its present value today.