A growing annuity pays $1,000 at the end of the second year (t=2). The payment grows 3% per year till the end of the sixth year (t=6). What is the present value for the five-year growing annuity if the discount rate is 8%? A. $3,907.73 B. $2,433.04 C. $4950.89 D. $4220.35

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.