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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