Question

How much would you pay today for an investment that provides you $2,380 each year for the

next 9 years, starting next year, and $14,504 13 years from now if the interest rate is 3.44% APR compounded annually?

Answer 1

Periodic payment each year for 9 years = $2380

Calculating the Present value of above payment:-

Where, C= Periodic Payments = $2380

r = Periodic Interest rate = 3.44%

n= no of periods = 9

Present Value = $18,156.48

- You would also receive $14,504,13 years from now. Calculating its Present Value today:-

Present Value = Cashflow in Year13/(1+r)^n

Where, Cashflow in Year13 = $14,504

r = Periodic Interest rate = 3.44%

n= no of periods = 13

Present Value = $14,504/(1+0.0344)^13

= $14,504/1.55221063376

= $9344.09

So, Present value today = $9344.09 + $18,156.48

= $27,500.57

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