Question

An investment offers $9,200 per year for 17 years, with the first payment occurring one year from now. Assume the required return is 12 percent.

What is the value of the investment today? **(Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)**

Present value $

What would the value be if the payments occurred for 42 years?

Present value $

What would the value be if the payments occurred for 77 years?

Present value $

What would the value be if the payments occurred forever?

Present value $

Answer #1

a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=9200[1-(1.12)^-17]/0.12

=9200*7.11963049

**=$65500.60(Approx).**

b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=9200[1-(1.12)^-42]/0.12

=9200*8.26193932

**=$76009.84(Approx).**

c.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=9200[1-(1.12)^-77]/0.12

=9200*8.33198116

**=$76654.23(Approx).**

d.Present value of perpetuity=Annual cash flows/required return

=9200/0.12

**=$76666.67(Approx).**

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investment? (Do not round intermediate calculations and
round your final answer to 2 decimal places, e.g.,
32.16.)
Present value
$
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