You receive $10,000 now for an investment that will return cash flows of $2,000 per year for five years and then $3,000 per year

Question

RSB [31]

2 years ago

14

You receive $10,000 now for an investment that will return cash flows of $2,000 per year for five years and then $3,000 per year

for another 5 years. What is the present value if the discount rate is 5%

Business

1 answer:

AnnZ [28] · Answer 1 · 2023-02-12T15:20:13+03:00

When the discount rate for the investment as given above is $10,000 and other such conditions, the present value will be $28835.72.

<h3>What is present value?</h3>

The current value of an assured sum of future annuity throughout the period of such engagement of money into any investment classes as such, is known as the present value.

The computation of the present value for the given information will be done as,

$\rm Present\ Value = 10000+ \dfrac{2000}{1+\ 0.05}\ x\ \dfrac{(1-1/1.05^5)}{(1-1/1.05)}+\dfrac{3000}{1.05^6}\ x\ \dfrac{(1-1/1.05^5)}{(1-1/1.05)}\\\\\rm Present\ Value = \$28835.72$

Hence, the computation of the present value is as done above.

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