Question

An investment offers $7,100 per year for 20 years, with the first payment occurring one year from now. If the required return is 7 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) Present value $ What would the value be if the payments occurred for 45 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) Present value $ What would the value be if the payments occurred for 70 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) Present value $ What would the value be if the payments occurred forever

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

An investment offers $7,100 per year for 20 years, with the first payment occurring one year from now.

A) i= 0.07

First, we need to calculate the final value:

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

A= annual deposit

FV= {7,100*[(1.07^20)-1]}/0.07= 291,068

PV= FV/(1+i)^n

PV= 291,068/1.07^20= 75,217.50

B)n=45

FV= {7,100*[(1.07^45)-1]}/0.07= 2,028,820.11

PV= 2,028,820.11/1.07^45= $96,599.20

C) n=70

FV= {7,100*[(1.07^70)-1]}/0.07= 11,460,352.64

PV= 11,460,352.64/1.07^70= 100,538.76