Question

Sasha has an investment worth 36,647 dollars. The investment will make a special payment of X to Sasha in 4 years from today. The investment also will make regular, fixed annual payments of 7,400 dollars to Sasha with the first of these payments made to Sasha later today and the last of these annual payments made to Sasha in 5 years from today. The expected return for the investment is 12.38 percent per year. What is X, the amount of the special payment that will be made to Sasha in 4 years?

Answer 1

Step 1 - Cash flow table from investment

Year	Cash Flow
0	7400
1	7400
2	7400
3	7400
4	7400+X
5	7400

Step 2 - Present Value of all the cash flows using 12.38% as discount rate

Year	Cash Flow	Present Value Factor @ 12.38%	Present Value
0	7400	1.00	7,400.00
1	7400	0.89	6,584.80
2	7400	0.79	5,859.41
3	7400	0.70	5,213.92
4	7400+X	0.63	4639.54 + 0.63X
5	7400	0.56	4,128.45
			33826.11 + 0.63X

Step 3 - Calculation of Special Payment X

36647 = 33826.11 + 0.63X

0.63X = 2830.89
X = 4493.47

Special payment at 4 Year = 4493.47