Billy Bob just purchased an investment that will pay him $10,000, $20,000 and $12,000 over the...

Billy Bob just purchased an investment that will pay him $10,000, $20,000 and $12,000 over the next three years, respectively. If Billy Bob expects to earn 12% compounded annually, how much did he pay for his investment? Please show work.

Expert Solution

Answer:- The amount that he pay for his investment will be equal to Present Value of cash flows

Present Value of cash flows = $10,000/ (1 + 0.12)¹ + $20,000/ (1 + 0.12)² +$12,000/ (1 + 0.12)³

Present Value of cash flows = 8928.571429 + 15943.87755 + 8541.362974

= $33413.81195

jeff jeffy answered 2 years ago

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