Exactly 20 years from now Mr. J. R Smith will start receiving a pension of $40,000 per year. The pension payment will continue for 10 years after retirement. How much is the pension worth now if the money is worth 6 percent per year?
Ans $ 91796.40
| VALUE OF RECEIPTS AFTER 20 YEARS | |
| P = | Periodic Payments |
| r = | rate of interest |
| n = | no of periods |
| Annuity PV Factor (End of Period) = | P [ 1 - ( 1 + r )^-n ] |
| r | |
| 40000* ( 1 - ((1 / (1 + 6%)^10))) | |
| 6% | |
| 17664.20892 | |
| 0.06 | |
| 294403.48 |
PRESENT VALUE OF ANNUITY
| FV = | Future Value |
| PV = | Present Value |
| r = | rate of interest |
| n= | no of period |
| PV = | FV/ (1 + r )^n |
| PV = | 294403.48 / ((1 + 6%)^20) |
| PV = | 91796.40 |
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