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Alina [70]
4 years ago
10

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. W

hat would the value be today if the payments occurred for 20 years
Business
1 answer:
garri49 [273]4 years ago
3 0

Answer:

The Today's value of payment occurred for 20 years is $72,039.

Explanation:

Payment of fixed amount for a fixed period of time is called annuity. Present value of annuity will be calculated as follow

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

According to given data

P = monthly payment = $6,800 every year

r = interest rate = 7%

n = number of period = 20 years = 20 periods

PV of annuity = $6,800 x [ ( 1- ( 1 + 0.07 )^-20 ) / 0.07 ]

PV of annuity = $72,039.30

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