In: Finance
- You wll receive $10,000 every other year for 20 years starting with the first payment today,i.e., $10,000 in every 2 years with total no of payments will be 10
First, we will convert annually Interest rate into 2-year effective annual Interest rate:-
2-year effective annual Interest rate = (1+r)^n - 1
Where,
r = Interest rate = 6%
n= no of periods = 2
2-year effective annual Interest rate = (1+0.06)^2 - 1
2-year effective annual Interest rate = 12.36%
Now, Since the Interest rate is also 2-year effective annual Interest rate and payments also incur every 2 years,
Calculating the Present Value of payments using PV of annuity due formula:-
Where, C= Periodic Payments = $10,000
r = Periodic Interest rate = 12.36%
n= no of periods = 10 payments
Present Value = $62,561.18
So, the present value is $62,561.18
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