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chubhunter [2.5K]
4 years ago
12

#1 What is the value today of a money machine that will pay $2,253.00 per year for 5.00 years? Assume the first payment is made

today and that there are 5.0 total payments. The interest rate is 9.00%.
Business
1 answer:
Tcecarenko [31]4 years ago
3 0

Answer:

Value today of the a money machine = $9552.08

Explanation:

The value of the money machine is the present value of the  equal amount of payment receivable for 5 years. This series of equal payments is called an annuity.

An annuity is a series of equal payments or receipts occurring for a certain number of years.

This will be done as follows:

Step 1 :The present value (PV) of the first payment is $2,253 as it is due immediately.

Step 2 :The PV of last 4 year annuity:

PV = 2,253 × ( 1 - (1.09)^(-4))/0.09 )

     = 2,253 × 3.2397

     = $ 7299.08

Value today of the a money machine = $ 7299.08 + $2,253

                                                               = 9552.08

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