Review - Growing Annuity valuation An investment offers $1000 to be received 9 years from today....

Review - Growing Annuity valuation

An investment offers $1000 to be received 9 years from today. After that payment, there will be nine more annual payments growing at a rate of 7% per year (for a total of 10 payments). If the relevant discount rate is 11% per year, the Present Value today of the entire investment is $_____.

Expert Solution

Present Value			$ 3,332.55

Working:

Year	Cash flow	Discount factor	Present Value
a	b	c=1.11^-a	d=b*c
9	$ 1,000	0.390925	$ 390.92
10	$ 1,070	0.352184	$ 376.84
11	$ 1,145	0.317283	$ 363.26
12	$ 1,225	0.285841	$ 350.17
13	$ 1,311	0.257514	$ 337.55
14	$ 1,403	0.231995	$ 325.38
15	$ 1,501	0.209004	$ 313.66
16	$ 1,606	0.188292	$ 302.36
17	$ 1,718	0.169633	$ 291.46
18	$ 1,838	0.152822	$ 280.96

Total			$ 3,332.55

jeff jeffy answered 6 months ago

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