An investment offers $4,300 per year for 11 years, with the first payment occurr

Question

An investment offers $4,300 per year for 11 years, with the first payment occurring one year from now. If the required return is 9 percent, the present value of the investment is $ . If the payments occurred for 39 years, the present value of the investment would be $ . If the payments occurred for 81 years, the present value of the investment would be $ . If the payments last forever, the present value would be $ (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

PV = 4300*PVIFA(9,11)

where pvifa = (1-(1+r)^-n)/r where r and n are req rate of return and no of years respectively.

PV = 4300*6.8052 = $29262.36

39 yrs

PV = 4300*PVIFA(9,39) = 4300*10.7255 = 46119.65

81 yrs

PV = 4300*PVIFA(9,81) = 4300*11.1008 = 47733.44

forever

PV = 4300/r = 4300/.09 = 47777.77

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