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Suppose that you will receive annual payments of $13,000 for a period of 10 years. The first payment will be made 5 years fro

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Answer #1

Value at year 4 = Annuity * [1 - 1 / (1+r)n] / r

Value at year 4 = 13,000 * [1 - 1 / (1+0.07)10] / 0.07

Value at year 4 = 13,000 * [1 - 0.508349] / 0.07

Value at year 4 = 13,000 * 7.023582

Value at year 4 = 91,306.56003

Present value = Future value / (1 + r)n

Present value = 91,306.56003 / (1 + 0.07)4

Present value = 91,306.56003 / 1.310796

Present value = $69,657.34

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Answer #2

Suppose that you will receive annual payments of $13,000 for a period of 10 years. The first payment will be made 7 years from now. If the interest rate is 7%, what is the present value of this stream of payments?


source: Lisa
answered by: lee
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Answer #3

SOLUTION :


Interest rate, r = 7% = 0.07

=> 1 = r = 1.07


Value  at year 5 beginning of annual payments of $13000 starting from year 5 beginning to tear 15 beginning as per annuity due case :

= Annual amount * (1 + r) ((1 +r)^n - 1) / (r(1+r)^n

= 13000 * 1.07 (1.07^10 - 1) / (0.07 * 1.07^10)

= 97698.02 ($)


This is further discounted to today.


So,


PV today 

= 97698.02/1.07^5

= 69657.34 ($) (ANSWER)

 


answered by: Tulsiram Garg

> 3rd line : please read " tear " as "year ".

Tulsiram Garg Sat, Oct 2, 2021 2:32 AM

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