An investment offers $6,100 per year for 15 years, with the first payment occurr

Question

An investment offers $6,100 per year for 15 years, with the first payment occurring one year from now. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) If the required return is 6 percent, what is the value of the investment? Present value What would the value be if the payments occurred for 40 years? Present value What would the value be if the payments occurred for 75 years? Present value What would the value be if the payments occurred forever? Present value

Explanation / Answer

1. Present Value of Investment if Interest rate is 6%

Present Value = Annual payment * PVAF (15, 6%)

Present Value = 6100 * 9.7122

Present Value = $59244.72

2. Present Value of Investment if Interest rate is 6% and Period is 40 years

Present Value = Annual payment * PVAF (40, 6%)

Present Value = 6100 * 15.0463

Present Value = $91782.41

3. Present Value of Investment if Interest rate is 6% and Period is 75 years

Present Value = Annual payment * PVAF (75, 6%)

Present Value = 6100 * 16.4558

Present Value = $100380.67

4. Present Value of Investment if Interest rate is 6% and Period is forever

Present Value = Annual payment / Interest Rate

Present Value = 6100 / 6%

Present Value = $101666.67

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