Question

You have decided to donate a sailing dinghy to the BU Sailing Team 12 years from today. The boat builder has offered to allow you to pay for the shell in 3 annual payments of $2,450 and the payments will begin 12 years from today. If the interest rate is 2.5%, what is the value today of your planned dinghy donation?

Answer 1

$ 5,202.85

Present Value	=	Annual cash flow	*	Present Value of annuity of 1 for 3 years	*	Present Value of 1 for 12 years
	=	$ 2,450.00	*	2.856024	*	0.743556
	=	$ 5,202.85
Working:
Present Value of annuity of 1 for 3 years	=	(1-(1+i)^-n)/i	Where,
	=	(1-(1+0.025)^-3)/0.025	i	=	2.50%
	=	2.8560236		n	=	3
Present Value of 1 for 12 years	=	(1+i)^-n		Where,
	=	(1+0.025)^-12	i	=	2.50%
	=	0.7435559		n	=	12