Question

What is the value today of a money machine that will pay $1794.00 per year for 17 years? Assume the first payment is made 7 years from today and the interest rate is 15%.

Answer 1

The amount is computed as shown below:

Present value = Future value / (1 + r)ⁿ

So, the amount will be as follows:

= $ 1794 / 1.15⁷ + $ 1794 / 1.15⁸ + $ 1794 / 1.15⁹ + $ 1794 / 1.15¹⁰ + $ 1794 / 1.15¹¹ + $ 1794 / 1.15¹² + $ 1794 / 1.15¹³ + $ 1794 / 1.15¹⁴ + $ 1794 / 1.15¹⁵ + $ 1794 / 1.15¹⁶ + $ 1794 / 1.15¹⁷ + $ 1794 / 1.15¹⁸ + $ 1794 / 1.15¹⁹ + $ 1794 / 1.15²⁰ + $ 1794 / 1.15²¹ + $ 1794 / 1.15²² + $ 1794 / 1.15²³

= $ 4,690.15 Approximately

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