Finance question: 1.a) Mejia’s grandmother plans on giving him $25,000 at the end of each year...

Finance question:

1.a) Mejia’s grandmother plans on giving him $25,000 at the end of each year for the next 9 years. Assuming a discount rate of 7%, what is the present value of this sum?

b) If Lesly’s grandmother will give him $5,000 at the beginning of each year for the next 10 years, what is the present value of this sum if the discount rate is 10%?

Expert Solution

P =	Periodic Payments
r =	rate of interest
n =	no of periods

Ans 1 a)
Annuity PV Factor (End of Period) =	P [ 1 - ( 1 + r )^-n ]
	r

	25000* ( 1 - ((1 / (1 + 7%)^9)))
	7%

	11401.65644
	0.07

	162880.81

Ans 1 b)
Annuity PV Due (Beginning)=	P + ( P [ 1 - ( 1 + r )^-(n-1) ] / r )


	5000 + 5000 * ( 1 - ((1 / (1 + 10%)^(10-1))))/ (10%)


	33795.12

jeff jeffy answered 2 years ago

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