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In: Accounting

You own a contract that promises an annuity cash flow of $150 year-end cash flows for...

You own a contract that promises an annuity cash flow of $150 year-end cash flows for each of the next 3 years. (Note: The first cash flow is exactly 1 year from today). At an interest rate of 11%, what is the present value of this contract?

Solutions

Expert Solution

Given in the question,                                                      

Annual interest=150

Rate of interest(i)= 11%=0.11

Period(n)=3 years

Total Interest = Annual interest X n

                         =150 X 3                   (Substituting the value from above)                      

                         =450

Total Interest = Present Value[(1+i)n-1]

450=Present Value[(1+0.11)3-1]                     (Substituting the value from above)                                           

450=Present Value[(1.11)3-1]

450=Present Value[1.3676-1]

450=Present Value[0.3676]

Present Value=450/0.3676

                        =$1,224

ekkarill92 answered 1 year ago
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