Question

An investment offers $4,800 per year for 19 years, with the first payment occurring one year from now. If the required return is 11 percent, the present value of the investment is $  . If the payments occurred for 31 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))

Answer 1

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

1.Present value=$4800[1-(1.11)^-19]/0.11

=$4800*7.83929421

which is equal to

=$37628.61(Approx).

2.Present value=$4800[1-(1.11)^-31]/0.11

=$4800*8.733146463

which is equal to

=$41919.10(Approx).

3.Present value=$4800[1-(1.11)^-81]/0.11

=$4800*9.088970679

which is equal to

=$43627.06(Approx).

4.Present value of perpetuity=Annual inflows/interest rate

=$4800/0.11

which is equal to

=$43,636.36(Approx).