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21 May, 18:22

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. What would the value be today if the payments occurred for 20 years

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  1. 21 May, 18:30
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    The Today's value of payment occurred for 20 years is $72,039.

    Explanation:

    Payment of fixed amount for a fixed period of time is called annuity. Present value of annuity will be calculated as follow

    PV of annuity = P x [ (1 - (1 + r) ^-n) / r ]

    According to given data

    P = monthly payment = $6,800 every year

    r = interest rate = 7%

    n = number of period = 20 years = 20 periods

    PV of annuity = $6,800 x [ (1 - (1 + 0.07) ^-20) / 0.07 ]

    PV of annuity = $72,039.30
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