":Your local travel agent is advertising an upscale winter vacation package for travel three years from now to Antarctica. The p
ackage requires that you pay $20,000 today, $35,000 one year from today, and a final payment of $45,000 on the day you depart three years from today. What is the cost of this vacation in today's dollars if the discount rate is 9.75 percent?
1 answer:
Answer:
$85,931.40
Explanation:
Present value is the sum of discounted cash flows.
Present value can be calculated using a financial calculator:
Cash flow in year 0 = $20,000
Cash flow in year 1 = $35,000
Cash flow in year 2 = 0
Cash flow in year 3 = $45,000
Discount rate = $85,931.40
I hope my answer helps you
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Answer:
The annuity is worth $5,000 today
Explanation:
We solve using the growing perpetuity formula for present value:
r = 0.06
g = 0.02
C = $200
$200/(0.06-0.02) = 200/.04 = $5,000