An investment offers $8,900 per year for 14 years, with the first payment occurr
ID: 2713544 • Letter: A
Question
An investment offers $8,900 per year for 14 years, with the first payment occurring 1 year from now. Assume the required return is 9 percent.
What is the value of the investment today?
What would the value be if the payments occurred for 39 years?
What would the value be if the payments occurred for 74 years?
What would the value be if the payments occurred forever?
An investment offers $8,900 per year for 14 years, with the first payment occurring 1 year from now. Assume the required return is 9 percent.
Explanation / Answer
1)
K = N
Present value of annuity = [(Payment)/(1 +discount rate/100)^k]
k=1
K = 14
Present value of annuity = [(8900)/(1 +9/100)^k]
k=1
= 69296.73
)
K = N
Present value of annuity = [(Payment)/(1 +discount rate/100)^k]
k=1
K = 39
Present value of annuity = [(8900)/(1 +9/100)^k]
k=1
= 95457.15
3)
1)
K = N
Present value of annuity = [(Payment)/(1 +discount rate/100)^k]
k=1
K = 74
Present value of annuity = [(8900)/(1 +9/100)^k]
k=1
= 98720.78
4)
1)
Present value of perpetual annuity =(Payment)/discount rate)
Present value of perpetual annuity =8900/0.09 = 98888.89
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