Let the payment received in year t be Pt
Value of Stock in Year 20 = S = 120
Hence, Sale Price = Present value of all payments received + Present value of Stock in year 20
= ΣPt*PV Factor + S*PV Factor
where PV Factor = 1/(1+r)t
r = interest rate = r = 10%
Year | Payment | PV Factor | PV |
1 | 5 | 0.909 | 4.545 |
2 | 5 | 0.826 | 4.132 |
3 | 5 | 0.751 | 3.757 |
4 | 5.1 | 0.683 | 3.483 |
5 | 5.1 | 0.621 | 3.167 |
6 | 5.1 | 0.564 | 2.879 |
7 | 5.1 | 0.513 | 2.617 |
8 | 5.15 | 0.467 | 2.403 |
9 | 5.15 | 0.424 | 2.184 |
10 | 5.15 | 0.386 | 1.986 |
11 | 5.15 | 0.350 | 1.805 |
12 | 5.15 | 0.319 | 1.641 |
13 | 5.25 | 0.290 | 1.521 |
14 | 5.25 | 0.263 | 1.382 |
15 | 5.25 | 0.239 | 1.257 |
16 | 5.25 | 0.218 | 1.143 |
17 | 5.25 | 0.198 | 1.039 |
18 | 5.25 | 0.180 | 0.944 |
19 | 5.25 | 0.164 | 0.858 |
20 | 5.25 | 0.149 | 0.780 |
NPV of Payment | 43.523 |
Hence, Present Value of Stock = 43.523 + 200/(1+0.10)20 = $73.25
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