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His recently departed Uncle Jimmy, may he rest in peace, has left Scott a 15-year annuity...

His recently departed Uncle Jimmy, may he rest in peace, has left Scott a 15-year annuity (15 annual payments). He will receive the first payment of $8,000 in 5 years from today, and payments will grow at a constant rate of 3% per year thereafter. If he is discounting at 6% (EAR), what is the present value of his inheritance?

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Answer #1

15-year annuity starting 5 years from today,

First payment = $8,000

Payment Growth rate = 3%

Discount rate = 6%

Valueo fannuity P/(r - g)[1-(1 +g)/1+r)))

Value of annuity = $93,310.57

This is value after 5 years,

Value of annuity today = 93310.57/(1.06)5

Value of Annuity = $69,727.38

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