Question

What is the value today of a money machine that will pay $2,655.00 every six months for 27.00 years? Assume the first payment is made six months from today and the interest rate is 13.00%

Answer 1

Answer:

Present value is $74,116.62

Explanation:

Giving the following information:

The machine pays= $2,655.00 every six months

n= 27 years= 54 semesters

Interest rate= 0.13/2= 0.065

First, we need to calculate the final value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual pay

FV= {2,655*[(1.065^54)-1]}/0.065= $1,183,854.61

Now, we can calculate the present value using the following formula:

PV= FV/(1+i)^n

PV= 1,183,854.61/(1.065)^44= $74,116.62