Question

An investment offers $5,700 per year, with the first payment occurring one year from now. The required return is 5 percent. a. What would the value be today if the payments occurred for 10 years

Answer 1

Answer:

The correct answer is "$44,013.89".

Explanation:

Given:

Investment per year,

= $5,700

Required return,

= 5%

As we know,

⇒ $Present \ value=Investment \ per \ year\times Annuity \ factor$

Or,

⇒ $Annuity \ factor=\frac{1-[\frac{1}{(1+k)}]^n }{k}$

then,

The present value of 10 annual payment will be:

= $5700\times \frac{1-[\frac{1}{(1+.05)}]^{10} }{.05}$

= $44013.89$ ($)