Answer:
The value today = $8,573.36
Explanation:
The value today of the investment would the present value of annuity of 1,100 receivable discounted at the at the rate of 8%.
The PV of the payment would be done as follows:
The number of payments would be 20 installments. Please be mindful not to say 19. Remember the first the payment occurs in year 4 which is inclusive.
PV = A × 1- ( (1+r)^(-n))/r
A- annual payment
r- rate of return
n- number of years
DATA
A- 1,100
r- 8%
n- 20
PV = 1,100 × 1- (1.08)^(-20)/0.08 = 10,799.96
PV (in year 0) = PV in year 3× (1+r)^(-3)
PV (in year 0) =10,799.96 × 1.08^(-3) = 8,573.36
PV (in year 0) = $ 8,573.36
The value today = $8,573.36
