Answer:
a. $425,678.
b. 20 years
c. net present value, bond yields, spot rates, and pension obligations.
Explanation:
a.
In order to find the present value we have to apply in the following formula
[tex]P = PMT * \frac{1-\frac{1}{(1+r)^{n} } }{r}[/tex]
where
P = Present value of an annuity stream
PMT = Dollar amount of each annuity payment
r = Interest rate (also known as discount rate)
n = Number of periods in which payments will be made
Replacing values we have that
[tex]P = 50000 * \frac{1-\frac{1}{(1+0.1)^{20} } }{0.1}[/tex]
P = $425,678
b.
As written in the exercise, 20 years for a present value of $425,678
c.
The package of bonds can include net present value, bond yields, spot rates, and pension obligations.
Answer:
a. $425678
Explanation:
a. Pv = C[(1-(1+i)^-n)/i]
we will us the above mentioned formula for present value annuity as we are looking for the present value of the future payments of $50000 per year at 10% per annum.
given: C the periodic payment which is $50000 paid per annum
i the interest rate per period which is 10% per annum
n is the periods that the amount is paid for which is 20 years in this case.
therefore Pv = 50000[(1-(1+10%)^-20)/10%] then we compute and get
Pv = $425678.19
wich is $425678 rounded off to the nearest dollar.
