You are considering an investment that promises to pay $500every week for 2 years with...

You are considering an investment that promises to pay $500 every week for 2 years with the first payment made immediately. If the opportunity cost of the investment is 10% p.a. compounded quarterly, what is the investment’s value today?

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Expert Solution

Effective quarterly rate = 10%/4 = 2.5%

Number of two-weeks in a quarter = 3 months per quarter * 2 two-weeks per month = 6

Effective two-week rate, r = (1 + 0.025)^(1/6) - 1

r = 0.004123915465

The first payment is immediate,

PV = PMT/r * (1 + r)

PV = 500/0.004123915465 * (1 + 0.004123915465)

PV = 121,243.9983902531 * 1.004123915465

PV = $121,743.9983902531

The investment's value today = $121,744

jeff jeffy answered 2 years ago

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