In: Finance
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 $_____.
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 |