In: Finance
Consider an annuity consisting of three cash flows of $8,000 each. If the interest rate is 6%, what is the present value (today) of the annuity if the first cash flow occurs:
a) Today
b) One year from today
c) Two years from today
d) Five years from today
Present value=Cash flows*Present value of discounting factor(rate%,time period)
a.Present value=8000+8000/1.06+8000/1.06^2
=$22667.14(Approx)
b.Present value=8000/1.06+8000/1.06^2+8000/1.06^3
=$21384.1(Approx)
c.Present value=8000/1.06^2+8000/1.06^3+8000/1.06^4
=$20173.68(Approx)
d.Present value=8000/1.06^5+8000/1.06^6+8000/1.06^7
=$16938.21(Approx)