Question

you are offered the oppurtunity to put some money away for retirement. you will recieve five annual payments of 25,000 each beginning in 40 yars. how much would you be willing to invest today if you desire an interest rate of 12%

Answer 1

Answer:

$90,119.405

Explanation:

Given:

Periodic payment (p) = $25,000

Number of payment (n) = 5

Interest rate (r) = 12% = 12 / 100 = 0.12

Present value = ?

Computation of Present value :

$Present\ Value = PMT [\frac{1-(1+i)^{-n}}{i}] \\\\ Present\ Value= 25,000 [\frac{1-(1+0.12)^{-5}}{0.12}]\\\\Present\ Value= 25,000 [\frac{1-(1.12)^{-5}}{0.12}]\\\\Present\ Value= 25,000 [\frac{1-0.567426856}{0.12}]\\\\Present\ Value= 25,000 [\frac{0.432573144}{0.12}]\\\\Present\ Value= 25,000 [3.6047762]\\\\Present\ Value= 90,119.405$

We be will invest $90,119.405 (approx).