What is the value of receiving $5,000 per year starting in one year for 10 years...

What is the value of receiving $5,000 per year starting in one year for 10 years assuming a 3% interest rate?

What if the $5,000 per year cash flows start in 9 years and continue for 12 years?

Expert Solution

First part:

a	Present value of annuity=	P* [ [1- (1+r)-n ]/r ]

P=	Periodic payment	5,000.00
r=	Rate of interest per period
	Annual interest	3.00%
	Number of payments per year	1
	Interest rate per period	0.03/1=
	Interest rate per period	3.000%

n=	number of periods:
	Number of years	10
	Periods per year	1
	number of payments	10

	Present value of annuity=	5000* [ (1- (1+0.03)^-10)/0.03 ]
	Present value of annuity=	42,651.01

Value today is $42,651.01

Second part:

a	Present value of annuity=	P* [ [1- (1+r)-n ]/r ]

P=	Periodic payment	5,000.00
r=	Rate of interest per period
	Annual interest	3.00%
	Number of payments per year	1
	Interest rate per period	0.03/1=
	Interest rate per period	3.000%

n=	number of periods:
	Number of years	12
	Periods per year	1
	number of payments	12

	Present value of annuity=	5000* [ (1- (1+0.03)^-12)/0.03 ]
	Present value of annuity=	49,770.02
	× Present value factor	0.76642
	Present value today	38,144.58

Answer is $38,144.58

please rate.

jeff jeffy answered 1 year ago

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