Answer:
$399,101.10
Explanation:
Since the first payment will be received one year from now, the formula for calculating the present value of an ordinary annuity is the relevant to employ as follows:
PV = P × [{1 - [1 ÷ (1+r)]^n} ÷ r] …………………………………. (1)
Where;
PV = Present value of the payments today =?
P = yearly payment = $31,000
r = interest rate = 6.4% = 0.064
n = number of years = 28
Substitute the values into equation (1) to have:
PV = $31,000 × [{1 - [1 ÷ (1+0.064)]^28} ÷ 0.064]
= $31,000 × [{1 - [1 ÷ (1.064)]^28} ÷ 0.064]
= $31,000 × [{1 - [0.93984962406015]^28} ÷ 0.064]
= $31,000 × [{1 - 0.176049346439602} ÷ 0.064]
= $31,000 × [0.823950653560398 ÷ 0.064]
= $31,000 × 12.8742289618812
PV = $399,101.10 approximately
Therefore, the value of the payments today is $399,101.10.
