Question

An investment offers $5,200 per year for 20 years, with the first payment occurring one year from now. |

If the required return is 7 percent, what is the value of the
investment today? |

What would the value today be if the payments occurred for 45
years? |

What would the value today be if the payments occurred for 70
years? |

What would the value today be if the payments occurred forever? |

Answer #1

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

=5200[1-(1.07)^-20]/0.07

=5200*10.59401425

**=$55088.87(Approx).**

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

=5200[1-(1.07)^-45]/0.07

=5200*13.60552159

**=$70748.71(Approx).**

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

=5200[1-(1.07)^-70]/0.07

=5200*14.16038934

**=$73634.02(Approx).**

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

=(5200/0.07)

**=$74285.71(Approx).**

An investment offers $5,500 per year, with the first payment
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An investment offers $6,500 per
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If the required return is 7 percent, what is the value of the
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round your final answer to 2 decimal places, e.g.,
32.16.)
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