Question

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.

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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