Question

Bridget Jones has a contract in which she will receive the following payments for the next five years: $8,000, $9,000, $10,000, $11,000, and $12,000. She will then receive an annuity of $14,000 a year from the end of the 6th through the end of the 15th year. The appropriate discount rate is 13 percent.

a. What is the present value of all future payments?

Answer 1

a. Present Value = $ 8,000 * 1/( 1.13) ^ 1 +$ 9,000* 1/( 1.13) ^ 2 + $ 10,000 * 1/( 1.13) ^ 3 + $ 11,000 * 1/( 1.13) ^ 4 + $ 12,000 * 1/( 1.13) ^ 5 + $ 14,000 * 1/( 1.13) ^ 6 + $ 14,000 * 1/( 1.13) ^ 7 +$ 14,000 * 1/( 1.13) ^ 8+$ 14,000 * 1/( 1.13) ^ 9+$ 14,000 * 1/( 1.13) ^ 10 + $ 14,000 * 1/( 1.13) ^ 11+$ 14,000 * 1/( 1.13) ^ 12+$ 14,000 * 1/( 1.13) ^ 13+$ 14,000 * 1/( 1.13) ^ 14+$ 14,000 * 1/( 1.13) ^ 15

= $ 75,550.16

Hence the correct answer is $ 75,550.16

answered by: anonymous