Gotham City has considered paying an annual bonus to Batman (according to the considerations mentioned below)...

Gotham City has considered paying an annual bonus to Batman (according to the considerations mentioned below) for helping them keep the city of criminals clean. However, Batman prefers the payment in a single display to the year 5. What single payment at the end of year 5 is equivalent to a series of equal annual payments of $ 850 Dlls, which in year 1 and end at the end of the year 12? The interest rate is 7% annual compound

Expert Solution


Assuming rate of return is 9% and hance taking the PV factor @ 9%

Year	Amount	Interest	Annual Cashflow (in$)	PV factor @ 9%	PV Of Cashflow
1	850	59.5	909.50	0.92	834.40
2	909.50	63.67	973.17	0.84	819.09
3	973.17	68.12155	1,041.29	0.77	804.06
4	1,041.29	72.8900585	1,114.18	0.71	789.31
5	1,114.18	77.9923626	1,192.17	0.65	774.83
				TOTAL	4,021.70

	Hence the Single one time payment which is made can be made at the end of Year 5 is 4021.70$

jeff jeffy answered 1 year ago

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