Question

What is the value today of a money machine that will pay $4,389.00 per year for 21.00 years? Assume the first payment is made 2.00 years from today and the interest rate is 7.00%.

Answer format: Currency: Round to: 2 decimal places.

What is the value today of a money machine that will pay $1,782.00 every six months for 21.00 years? Assume the first payment is made 4.00 years from today and the interest rate is 10.00%.

Answer format: Currency: Round to: 2 decimal places.

Could really use the help! am trying to understand the process

Answer 1

Q1) First we have to find the PV of the PMTs at teh beginning of year 2 and then discount it for 2 years back to current time 0

• We are given the following information

• PMT	$              4,389.00
  r	7.00%
  n	21
  frequency	1 (annual)

• We need to solve the following equation to arrive at the required PV
• 
• 
• 
• So the PV at the beginning of year 2 is 47557.13
• Now we discount it back 2 years
  • 
  • 
  • 
  • So the PV at time 0 is 41538.24

Q2) What is the value today of a money machine that will pay $1,782.00 every six months for 21.00 years? Assume the first payment is made 4.00 years from today and the interest rate is 10.00%.

• First we have to find the PV of the PMTs at the beginning of year 4 and then discount it for 4 years back to current time 0

  We are given the following information

• PMT	$              1782.00
  r	10.00%
  n	21
  frequency	2 (6 monthly)

• We need to solve the following equation to arrive at the required PV
• 
• 
• 
• So the PV at the beginning of year 4 is $31048.16
• Now we discount it back 4 years but at intervals of 6 months
  • 
  • 
  •