Question

What is the value of an investment that will pay investors $569 per year for give years and will also pay investors an additioal $782 in 3 years from today if the epxected return for the investment is 6.91% and the first $569 annual payment will be paid to investors in one year from today?

Answer 1

Given,

Annual payment (A) = $569

No. of years (n) = 5 years

Additional payment = $782

Expected return (r) = 6.91% or 0.0691

Solution :-

Value of investment

= A/r x [1 - (1 + r)^-n] + [additional payment x (1 + r)^-3]

= $569/0.0691 x [1 - (1 + 0.0691)^-5] + [$782 x (1 + 0.0691)^-3]

= $569/0.0691 x [1 - (1.0691)^-5] + [$782 x (1.0691)^-3]

= $569/0.0691 x [1 - 0.7159923] + [$782 x 0.8183611639]

= $569/0.0691 x 0.2840077 + [$639.958430169]

= $2338.64517076 + $639.958430169

= $2978.60