The calculated present value of the annuity is $915,166.70.
Explanation and Solution:
Annuity is a collection of fixed payments made or earned either at the close or at the beginning of any term such that a significant initial payment or receipt may be turned into a set of comparatively minor payments or receipts. An annuity that lasts indefinitely is called perpetuity.
The formula for the present value of the annuity is given by:
[tex]P = \frac{1- (1+i)^{-n} }{i} * R[/tex]
Where;
R = annual payment = $75,000
i = interest rate = 5.25%
P = Present value of annuity
n = number of years = 20 years
P = [tex]\frac{1- (1+5.25)^{-20} }{5.25} * 75,000[/tex]
P = $915,166.70
