Question

You are considering an investment that has a payoff of $881.99 in 32 years. If the interest rate is 3.63%,

and interest is compounded annually, then what is this investment worth to you today?

Answer =

Cash Flow =

r =

n =

Answer 1

1. You need single pay off of $881.99 after 32 years, Rate would be 3.63% compunding annual.

2. All three elements are given Cash flow, Time period and rate. And this is only single cash flow so it would be a difficult one.

3. You need to calculate the present value of $881.99 that means $881.99 is the Future value and you need to bring back the value in present terms using rate 3.63% and time 32 years.

4. For calulating Future value you use compunding and to calculate Present value you use discounitng.

5. Just solving the below equation will give you answer.

= 881.9 / 3.13

= 281.76 approx is the answer.