Question

You can purchase an investment that pays $5,000 at the end of each year for twenty...

You can purchase an investment that pays $5,000 at the end of each year for twenty years. The investment pays a 3% annual interest rate. How much should you pay for the investment today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Information provided:

Yearly return= $5,000

Time= 20 years

Interest rate= 3%

The amount to be paid today is calculated by computing the present value of the investment.

The present value is calculated with the help of a financial calculator by entering the below in a financial calculator:

PMT= 5,000

N= 20

I/Y= 3

Press the CPT key and PV to calculate the present value.

The value obtained is $74,387.37.

Therefore, you should pay $74,387.37 for the investment today.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An investor pays $10,000 today to purchase an investment that returns $5,000 at the end of...
An investor pays $10,000 today to purchase an investment that returns $5,000 at the end of each of years 2, 4, and 5. The returns are immediately reinvested at an annual interest rate of 5%. Calculate the annual effective yield rate for the investor at the end of the fifth year. (a) 9.91% (b) 12.00% (c) 12.45% (d) 13.11% (e) 15.13%
What would you pay for an investment that pays you $25500 at the end of each...
What would you pay for an investment that pays you $25500 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 8%.
a. An investment pays you ​$20,000 at the end of this​ year, and ​$10,000 at the...
a. An investment pays you ​$20,000 at the end of this​ year, and ​$10,000 at the end of each of the four following years. What is the present value​ (PV) of this​ investment, given that the interest rate is 3​% per​ year? a. $27,753 b. $66,607 c. $55, 506 d. $44,405 B. A perpetuity has a PV of $27,000. If the interest rate is 4​%, how much will the perpetuity pay every​ year? a. $540 b. $864 c. $1080 d....
An investment pays you $50,000 at the end of each of the next 20 years. The...
An investment pays you $50,000 at the end of each of the next 20 years. The investment also pays you $1,000 at the end of each month over the same 20 year period. Assuming a discount rate of 10%, how much should you pay for this investment? Group of answer choices $529,303 $464,292 $610,462 $567,572 $495,048
An investment will pay you $5,000 two years from today and another $5,000 six years from...
An investment will pay you $5,000 two years from today and another $5,000 six years from today. If you require a 9% annual rate of return the investment, how much is the investment worth to you today? a. $6,954.60 b. $7,189.74 c. $7,974.78 d. $7,698.90 e. $7,437.54 You plan to retire 30 years from today. You wish to have enough in your retirement account to provide you with $50,000 at the end of each year for 20 years after you...
An investment promises to pay $5,000 at the end of each year for the next 7...
An investment promises to pay $5,000 at the end of each year for the next 7 years, $9,000 at the end of each year for years 8 through 20, and $3,000 at the end of each year for years 21 through 35. If you require a 10% annual rate of return on this investment, what is the present value of these cash flows at a 10% annual rate of return? Show time value of money equation and work.
You can purchase a fifteen-year annuity, that pays $26,500 a year. The first payment starts nine...
You can purchase a fifteen-year annuity, that pays $26,500 a year. The first payment starts nine years from today. What is a fair market price today if your opportunity cost of investment is 5%? A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust (a local bank) to pay the lumpsum payout to the trust and have trust...
You are considering the purchase of an investment that would pay you $5,000 per year for...
You are considering the purchase of an investment that would pay you $5,000 per year for Years 1‑5, $3,000 per year for Years 6‑8, and $2,000 per year for Years 9 and 10. If you require a 16 percent rate of return, and the cash flows occur at the end of each year, then what is the MOST you would be willing to pay for this investment? Answer to 0 decimal places.
Suppose you make annual contributions of $5,000 to your investment account at the end of each...
Suppose you make annual contributions of $5,000 to your investment account at the end of each year for the first 5 years and $7,500 at the end of each year for the second 5 years. If the account earns 5% annually for the first five years and earns 10% annually for the second five years, how much can be withdrawn early in the 11th year?
1. You can purchase a fifteen-year annuity, that pays $26,500 a year. The first payment starts...
1. You can purchase a fifteen-year annuity, that pays $26,500 a year. The first payment starts nine years from today. What is a fair market price today if your opportunity cost of investment is 5%? 2. Another bank will let you borrow the $20,000 for your new car. You can still borrow at 7% per year. If you take the 3-year loan, what are your monthly payment? 3. Suppose you borrow $35,000 and you are going to make annual payments...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT