Question

An investment offers €4,000 per year for 10 years, with the first payment occurring one year from now. (Do not include the euro sign (€). Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Required:
If the required return is 9 per cent, what is the value of the investment?

Answer 1

Answer:

25,670.80€

Explanation:

this is an ordinary annuity since the first payment occurs one year from now. The present value of an ordinary annuity is given by the following formula:

present value = annual distribution x PV annuity factor

• annual distribution =4,000
• PV annuity factor, 9%, 10 periods = 6.4177

present value = 4,000 x 6.4177 = 25,670.80€