Question

n investment offers $6,900 per year for 10 years, with the first payment occurring one year from now.

a.	If the required return is 5 percent, what is the value of the investment today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What would the value today be if the payments occurred for 35 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	What would the value today be if the payments occurred for 65 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	What would the value today be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

a).Recurring annual payment for 10 yaers = $6900

Calculating the Present value of recurring depsoit:-

Where, C= Periodic Payments = $6900

r = Periodic Interest rate = 0.05

n= no of periods = 10

Present value = $ 53,279.97

b). Now, Calculating if the apyment occured for 35 years:-

Assuming Required rate to be same 5%.

Where, C= Periodic Payments = $6900

r = Periodic Interest rate = 0.05

n= no of periods = 35

Present value = $ 112,981.94

c). Now, Calculating the Present Value if the apyment occured for 65 years:-

Assuming Required rate to be same 5%.

Where, C= Periodic Payments = $6900

r = Periodic Interest rate = 0.05

n= no of periods = 65

Present value = $ 132,211.39

d). Now, Calculating the Present Value if the payment occured for forever:-

Assuming Required rate to be same 5%.

Where, C= Periodic Payments = $6900

r = Periodic Interest rate = 0.05

Present value = $ 138,000

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