Three years from now you will begin receiving annual payments of? $7,200. this will continue for 14 years. at a discount rate of? 5.8%, what is the present value of this stream of cash? flows?

The type of annuity presented above is a deferred annuity because the payment starts sometime in the future. The present worth of deferred annuity is calculated through the equation,

PV = R x ((1 - (1 + i) ^-n) / i) (1 + i) ^-k

where PV is the present worth

R is payment = $7200

n is the total number of payments to be made = 14

k is the deferred period = 3

i is interest = 0.058

Substituting the known values,

PV = ($7,200) ((1 - (1 + 0.058) ^-14) / 0.058) (1 + 0.058) ^ (-3)

PV = $57,216

Thus, the present worth of the deferred annuity is approximately $57,216.3.

The cash flow is considered to be a deferred one because the annual payments is made on a later date. The formula for finding the present value (PV) of a deferred annuity is given as:

PV of annuity = A * ((1 - (1 + i) ^-n) / i) (1 + i) ^-k

Where,

A = annual payments = 7,200

i = interest rate = 5.8% = 0.058

n = number of years = 14

k = deferred years = 3

Substituting the given values into the formula:

PV = 7,200 * [ (1 - (1 + 0.058) ^-14) / 0.058] (1 + i) ^-3

PV = 57,216.29

Therefore the present value is about $57,216.29