Question

You will receive 27 annual payments of $22,500. The first payment will be received 7 years from today and the interest rate is 5.1 percent. What is the value of the payments today?

Answer 1

Answer:

PV= $230,148.09

Explanation:

Giving the following information:

You will receive 27 annual payments of $22,500. The first payment will be received 7 years from today and the interest rate is 5.1 percent.

First, we need to calculate the final value of the payments.  We need to use the following formula:

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

A= annual pay= 22,500

n= 27

i= 0.051

FV= {22,500*[(1.051^27)-1]}/ 0.051

FV= $1,248,819.52

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 1,248,819.52/ (1.051^34)

PV= $230,148.09