What is the value of an investment that pays $19,000 every other year forever, i

Question

What is the value of an investment that pays $19,000 every other year forever, if the first payment occurs one year from today and the discount rate is 12 percent compounded daily? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the value today if the first payment occurs four years from today? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the value of an investment that pays $19,000 every other year forever, if the first payment occurs one year from today and the discount rate is 12 percent compounded daily? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Payment is made every other year, you need to determine a two-year interest rate. Since the compounding is daily, the formula is (1+(12%/365))^(365*2)-1

Present Value = 19000+19000/((1+(12%/365))^(365*2)-1)

=$89059.25

value today if the first payment occurs four years from today = 89059.25/(1+12%/365)^(365*4)

=$55112.73

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