Question

An investment offers $10,300 per year for 14 years, with the first payment occurring one year from now. Assume the required return is 11 percent. What is the value of the investment today? What would the value be if the payments occurred for 39 years?

Answer 1

The value of the investment today is computed as follows:

= $ 10,300 / 1.11¹ + $ 10,300 / 1.11² + $ 10,300 / 1.11³ + $ 10,300 / 1.11⁴ + $ 10,300 / 1.11⁵ + $ 10,300 / 1.11⁶ + $ 10,300 / 1.11⁷ + $ 10,300 / 1.11⁸ + $ 10,300 / 1.11⁹ + $ 10,300 / 1.11¹⁰ + $ 10,300 / 1.11¹¹ + $ 10,300 / 1.11¹² + $ 10,300 / 1.11¹³ + $ 10,300 / 1.11¹⁴

= $ 71,913.21 Approximately

Value if the payments occurred for 39 years is computed as follows:

= $ 10,300 / 1.11¹ + $ 10,300 / 1.11² + $ 10,300 / 1.11³ + $ 10,300 / 1.11⁴ + $ 10,300 / 1.11⁵ + $ 10,300 / 1.11⁶ + $ 10,300 / 1.11⁷ + $ 10,300 / 1.11⁸ + $ 10,300 / 1.11⁹ + $ 10,300 / 1.11¹⁰ + $ 10,300 / 1.11¹¹ + $ 10,300 / 1.11¹² + $ 10,300 / 1.11¹³ + $ 10,300 / 1.11¹⁴ + $ 10,300 / 1.11¹⁵ + $ 10,300 / 1.11¹⁶ + $ 10,300 / 1.11¹⁷ + $ 10,300 / 1.11¹⁸ + $ 10,300 / 1.11¹⁹ + $ 10,300 / 1.11²⁰ + $ 10,300 / 1.11²¹ + $ 10,300 / 1.11²² + $ 10,300 / 1.11²³ + $ 10,300 / 1.11²⁴ + $ 10,300 / 1.11²⁵ + $ 10,300 / 1.11²⁶ + $ 10,300 / 1.11²⁷ + $ 10,300 / 1.11²⁸ + $ 10,300 / 1.11²⁹ + $ 10,300 / 1.11³⁰ + $ 10,300 / 1.11³¹ + $ 10,300 / 1.11³² + $ 10,300 / 1.11³³ + $ 10,300 / 1.11³⁴ + $ 10,300 / 1.11³⁵ + $ 10,300 / 1.11³⁶ + $ 10,300 / 1.11³⁷ + $ 10,300 / 1.11³⁸ + $ 10,300 / 1.11³⁹

= $ 92,037.36 Approximately

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