Question

- Dusty Wallace will receive $8,000 and $9,000 at the end of the next two years respectively. Then from the end of the third year through the end of the tenth year, he will receive an annuity of $10,000. At a discount rate of 8% what is the present value of all future benefits? (10)

Answer #1

Present Value = Future value / (1 + R)^{T}

T = Time in years

R = Interest rate

Present Value = $8,000/(1.08)^{1}]+
[$9,000/(1.08)^{2}]+ [$10,000/(1.08)^{3}]+
[$10,000/(1.08)^{4}]+ [$10,000/(1.08)^{5}]+
[$10,000/(1.08)^{6}]+ [$10,000/(1.08)^{7}]+
[$10,000/(1.08)^{8}]+ [$10,000/(1.08)^{9}]+
[$10,000/(1.08)^{10}]

Present Value = [$8,000 * 0.9259] + [$9,000 * 0.8573] + [$10,000 *0.7938 ] + [$10,000 * 0.735] + [$10,000 * 0.6806] + [$10,000 * 0.6302] + [$10,000 * 0.5835] + [$10,000 *0.5403 ] + [$10,000 * 0.5002] + [$10,000 * 0.4632]

Present Value = $64,391.62

So, **Present Value of all future benefits =
$64,391.62.**

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