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gulaghasi [49]
3 years ago
10

A series of five constant-dollar (or real-dollar) uniform payment of $897.63 is made begining at the end of first year. Assume t

hat the general inflation rate is 18.3% and the market interest rate is 18.3% during this inflationary period.
The equivalent present worth of the series is:_________.
Business
1 answer:
Vinil7 [7]3 years ago
8 0

Answer:

The equivalent present worth of the series is $4,182.21

Explanation:

Fix periodic payments for a specific period of time are annuity payment and the payments made at the start of each period is known as advance annuity.

As per given data

Inflation per year = 18.3% / 5 = 3.66%

numbers of period = 5 years

Payment per period = $897.63

Use following formula to calculate the present value of annuity payments

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

Where

P = Payment per period = $897.63

r = rate in of interest = 3.66%

n = numbers of periods = 5 years

Placing values in the formula

Equivalent present worth of the series = $897.63 + $897.63 x ( 1 - ( 1 + 3.66% )^-(5-1) / 3.66% )

Equivalent present worth of the series = $4,182.21

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Explanation:

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Future Value = Present value ( 1 + interest rate )^number of years

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log 2.5 = n log 1.105

n = log 2.5 / log 1.105

n = 9.1771

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Answer:

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