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In: Finance

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 $_____.

Solutions

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

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