Answer:
- <u><em>$31,858.57</em></u>
Explanation:
1. First calculate the value of a constant annuity of $1,500 for 15 years at the 8% return.
The formula is:
Where:
- PV is the present value of the annuity
- C is the constant pay,emt: $1,500
- r is the rate of return: 8%/12 = 0.08/12 =
- t is the number of periods: 15 years × 12 moths/year = 180
Substitute and compute:
<u>2. Discount to the present year.</u>
You calculate the value of the annuity 20 years from now.
Then, you must discount that value at the same 8% rate to have the price today.
Here, the value in 20 years is $156,960.89, r = 0.08/12, and t = 240 (20 × 12).