Multiple Choice Question On January 1, Vango, Inc. purchased a van and promised to pay \( \$ 11,223.34 \) on December 31 for the next 3 years. The market rate of interest is \( 6 \% \) compounded annually. The amount of the purchase is calculated by - multiplying \( \$ 11,223.34 \) by the present value of a \( \$ 1 \) with \( n=3 \) and \( i=6 \% \). dividing \( \$ 11,223.34 \) by the present value of a \( \$ 1 \) with \( n=3 \) and \( i=6 \% \). dividing \( \$ 11,223.34 \) by the present value of an annuity with \( n=3 \) and \( i=6 \% \). multiplying \( \$ 11,223.34 \) by the present value of an annuity with \( n=3 \) and \( i=6 \% \).

When Vango, Inc. agreed to pay \( \$ 11,223.34 \) at the end of each year for three years, they committed to an annuity. To find the purchase price of the van, you would divide the total payment by the present value of an annuity factor for \( n=3 \) years and an interest rate of \( 6\% \). This approach allows you to determine how much the payments are worth in today’s dollars. The present value of an annuity can help businesses and individuals make savvy financial decisions. By understanding how to convert future payments into present value, entities can evaluate investments, loans, or any payment structures involving recurring amounts. It’s all about knowing how much those future dollars are “worth” today!