| An investment offers $6,300 per year, with the first payment occurring one year from now. The required return is 5 percent. |
| a. | What would the value be today if the payments occurred for 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. |
What would the value be today if the payments occurred for 35 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | What would the value be today if the payments occurred for 65 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| d. | What would the value be today if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$6300[1-(1.05)^-10]/0.05
=$6300*7.721734929
=$48646.93(Approx).
b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$6300[1-(1.05)^-35]/0.05
=$6300*16.37419429
=$103,157.42(Approx).
c.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$6300[1-(1.05)^-65]/0.05
=$6300*19.16107033
=$120,714.74(Approx).
d.Present value of perpetuity=Annual cash flows/required rate
=(6300/0.05)
=$126,000
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