Assume that you borrowed money from your grandmother to attend college. Your deal with her is that you will pay her $1,000 per year for the next ten years with the first payment occurring at the end of this year. If your discount rate is 5%, what is the present value of these ten payments?

Question

Russell Warner

Business

20 January, 19:03

Assume that you borrowed money from your grandmother to attend college. Your deal with her is that you will pay her $1,000 per year for the next ten years with the first payment occurring at the end of this year. If your discount rate is 5%, what is the present value of these ten payments?

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Focker · Answer 1

PV = $7,721.73

Explanation:

Giving the following information:

Your deal with her is that you will pay her $1,000 per year for the next ten years with the first payment occurring at the end of this year. If your discount rate is 5%.

To calculate the present value we need to use the following formula:

NPV = ∑[Cf / (1+i) ^n]

For example:

Year 4 = 1,000/1.05^4 822.70

Year 8 = 1,000/1.05^8 = 676.84

NPV = $7,721.73