Question

You are offered an investment that will pay you $1,721 per month for next 16 years....

You are offered an investment that will pay you $1,721 per month for next 16 years. Assuming you want to earn an 5.04% rate of return, what is this investment worth today? Round to the nearest cent.

Homework Answers

Answer #1
a Present value of annuity= P* [ [1- (1+r)-n ]/r ]
P= Periodic payment                       1,721.00
r= Rate of interest per period
Annual interest 5.04%
Number of payments per year 12
Interest rate per period 0.0504/12=
Interest rate per period 0.420%
n= number of periods:
Number of years 16
Periods per year 12
number of payments 192
Present value of annuity= 1721* [ (1- (1+0.0042)^-192)/0.0042 ]
Present value of annuity= 226,509.40

Answer is $226,509.40

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