An investment offers $10,000 per year for 20 years, with the first payment occurring 1 year from now. If the required rate of return is 5%, what is the value of the investment? What would the value be if the payments occurred forever? Please pick answers, respectively.
| A. |
$128,431.2 and $ 250,000 |
|
| B. |
$121,538.2 and $150,000 |
|
| C. |
$124,622.1 and $ 150,000 |
|
| D. |
$124,622.1 and $ 200,000 |
|
| E. |
$128,431.2 and $ 200,000 |
Present value of 20 payments:
| a | Present value of annuity= | P* [ [1- (1+r)-n ]/r ] | ||
| P= | Periodic payment | 10,000.00 | ||
| r= | Rate of interest per period | |||
| Annual interest | 5.00% | |||
| Number of payments per year | 1 | |||
| Interest rate per period | 0.05/1= | |||
| Interest rate per period | 5.000% | |||
| n= | number of periods: | |||
| Number of years | 20 | |||
| Periods per year | 1 | |||
| number of payments | 20 | |||
| Present value of annuity= | 10000* [ (1- (1+0.05)^-20)/0.05 ] | |||
| Present value of annuity= | 124,622.10 |
Present value of forever payments = 10,000/5% = 200,000
Answer is:
|
$124,622.1 and $ 200,000 |
| please rate. |
Get Answers For Free
Most questions answered within 1 hours.