A bank has created a new financial asset that pays $200 per year, and these payments...
A bank has created a new financial asset that pays $200 per year, and these payments begin 7 years from now. If the annual interest rate is 9%, what is the value of this asset today?
Homework Answers
PV of Annuity = P [ 1- (1+r) -n] / r
P= periodic payments, r = rate per period, n = number of periods
P = $200, n = 7, r = 9%
Putting the above values in the formula, we get:
PV of annuity = 200 [1-(1+.09) -7] / .09
PV of Annuity = $1006.59
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