Question

A new start-up company promises to pay an investor each quarter for the next two years. The company will pay $22,225.00 per quarter for the first four quarters, and then $25,075.00 per quarter for the following four quarters. If the investor wants a 8.40% APR return with quarterly compounding, what is the value of the investment opportunity today?

Answer 1

The value is computed as follows:

Present value = Future value / (1 + r)ⁿ

r is computed as follows:

= 8.4% / 4

= 2.1% or 0.021

So, the amount will be as follows:

= $ 22,225 / 1.021¹ + $ 22,225 / 1.021² + $ 22,225 / 1.021³ + $ 22,225 / 1.021⁴ + $ 25,075 / 1.021⁵ + $ 25,075 / 1.021⁶ + $ 25,075 / 1.021⁷ + $ 25,075 / 1.021⁸

= $ 172,071.59 Approximately