Question

What is the present value of a security that will pay $17,000 in 20 years if securities of equal risk pay 5 nnually? round your answer to the nearest cent

Answer 1

The present value of a security that will pay $17,000 in 20 years if securities of equal risk pay 5 annually is $13,320.

A financial calculation known as present value, commonly referred to as discounted value, assesses the value of a future sum of money or stream of payments in today's dollars after accounting for interest and inflation. In other words, it contrasts the purchasing power of one dollar today with that of one dollar in the future.

PV = FV/(1+r) ^n

Where, PV = Present value

FV = Future value

r = R/100

R = interest or discount rate

n = number of periods or years

Now,

PV = 17000/{1+(5/100)} ^5

PV = 17000/1.2762815625

PV = 13,320

Hence, present value is $13,320.

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