Wilt has a consulting contract with a firm that states that he will receive annual payments of $50,000 a year for five years wit

Question

3 years ago

9

h the first payment due today. What is the current value of this contract if the discount rate is 8.4 percent

1 answer:

Evgesh-ka [11] · Answer 1 · 2022-08-19T13:02:55+03:00

Answer:

Current value of contract is $214,142.50

Explanation:

A fix payment for a specific period starting today is called advance annuity. It is discounted on a given rate to calculate present value of annuity.

Present value of annuity is calculated by following formula.

PV of annuity = C [ ( 1 - ( 1 + r )^-(n-1) ) / r ]

PV of annuity = $50,000 [ ( 1 - ( 1 + 0.084 )^-(5-1) ) / 0.084 ]

PV of annuity = $50,000 [ ( 1 - ( 1 + 0.084 )^-4 ) / 0.084 ]

PV of annuity = $214,142.50