If your grandmother’s estate will pay you $280 a year for 7 years, at an interest...

If your grandmother’s estate will pay you $280 a year for 7 years, at an interest rate of 6%, what will the present value of these payments?

Expert Solution

Present Value of these payments	=	Annual payment * Present value of annuity of 1
	=	$ 280.00	*	5.582381
	=	$ 1,563.07
Working:

Present value of annuity of 1	=	(1-(1+i)^-n)/i			Where,
	=	(1-(1+0.06)^-7)/0.06			i	6%
	=	5.5823814			n	7

Note:
Assuming payments are made at the end of year.
If these payments are made at the beginning of the year the,

Present Value of these payments	=	Annual payment * Present value of annuity of 1
	=	$ 280.00	*	5.917324
	=	$ 1,656.85
Working:

Present value of annuity of 1	=	((1-(1+i)^-n)/i)*(1+i)			Where,
	=	((1-(1+0.06)^-7)/0.06)*(1+0.06)			i	6%
	=	5.9173243			n	7

jeff jeffy answered 1 year ago

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