Question

Beginning in 6 years, (beginning of years 6, 7,8 and 9) Sally Mander will receive four annual benefit checks of $12,000 each. If Sally assumes an interest rate of 7%, what is the present value of these checks?

Answer 1

Answer:

$28,980

Explanation:

The present value can be calculated by multiplying annual cashflows with the discount factor. The table to calculate the Present Value has been made below.

DATA

Annual benefit = $12,000

Discount rate = 7%

Present value =?

Calculation

Year      Cash inflows Discount factor Present Value

6            $12,000                   0.666              $7,992

7            $12,000                   0.623              $7,476

8            $12,000                   0.582              $6,984

9            $12,000                   0.544              $6,528  

Total                                                               $28,980