Question

An investment offers $6,400 per year for 15 years, with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment

Answer 1

Answer:

PV= $62,158.4

Explanation:

Giving the following information:

Annual payment= $6,400

Number of periods= 15 years

Interest rate= 6% = 0.06

First, we need to calculate the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {6,400*[(1.06^15) - 1]} / 0.06

FV= $148,966.21

Now, the present value:

PV= FV/(1+i)^n

PV= 148,966.21 / (1.06^15)

PV= $62,158.4