XYZ has an investment worth $56,000. The investment will make aspecial, extra payment of X...

XYZ has an investment worth $56,000. The investment will make a special, extra payment of X to XYZ in 2 years from today. The investment also will make regular, fixed annual payments of $12,000 to XYZ with the first of these payments made to XYZ in 1 year from today and the last of these annual payments made to XYZ in 5 years from today. The expected return for the investment is 13.2 percent per year. What is X, the amount of the special payment that will be made to XYZ in 2 years?

Solutions

Expert Solution

Investment worth today = $56,000

- Investment will pay extra payment at the end of year 2 to XYZ of X.

- Investment will also offer regular fixed annual payments of $12,000 at the end of each period for 5 years, we will use Present Value of Ordinary annuity formula to compute ist Present value today.

Calculating the Value of X:-

Where, C= Periodic Payments = $12,000

r = Periodic Interest rate = 13.2%

n= no of periods = 5

Present Value = $56,000

X = $17,937.86

So, X the amount of special paymnet is $17,937.86

jeff jeffy answered 2 years ago

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