Question

What is the present value of a security that will pay $27,000 in 20 years if securities of equal risk pay 11% annually? Do not round intermediate calculations Round your answer to the nearest cent.

Answer 1

Present Value Interest Factor (PVIF) = 1 / (1+r)^n

r = rate

n = number of years

Present Value Interest Factor (PVIF) at 11% and 20 years

= 1 / (1+11%)^20

= 1 / (1+0.11)^20

= 1 / 8.062311536129141200

= 0.124033907089643144

Present Value of security = $27,000 * PVIF(at 11% , 20 years)

= $27,000 * 0.124033907089643144

= $3,348.915491420364909

= $3,348.92 (rounded off to the nearest cent)

Therefore, present value of a security that will pay $27,000 in 20 years if securities of equal risk pay 11% annually is $3,348.92

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