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lubasha [3.4K]
3 years ago
6

An investment, which is worth 26,800 dollars and has an expected return of 4.28 percent, is expected to pay fixed annual cash fl

ows forever with the next annual cash flow expected in 1 year. What is the present value of the annual cash flow that is expected in 4 years from today
Business
1 answer:
Dennis_Churaev [7]3 years ago
7 0

Answer:

Present Value =  $22,663.69

Explanation:

<em>The present value of a sum expected in the future is the worth today given an opportunity cost interest rate. In another words ,it is amount receivable today that would make the investor to be indifferent between the amount receivable today and the future sum.</em>

The present value of a lump sum can be worked out as follows:

PV = FV × (1+r)^(-n)

PV - Present value - ?

FV - Future value - 26,800

r- Interest rate per period - 4.28%

n- number of periods- 4

PV = 26,800 × (1.0428)^(-4)=22,663.69

PV =  $22,663.69

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