Question

A.) What is an investment fund worth today that will pay you $35,000 a year for the next twelve years if you can earn 5.2%? B.) what if it will pay $35,000 semi-annually?

Answer 1

The Investment pays $35000 a year for the next 12 years The interest rate is 5.2% Assuming the amount is being paid at the end of each year Interest rate (r) = 5.2% Periodic annual payment (p)= 35000 Number of payments(n) = 12 Present value = P*(1-(1+r)^-n)/ 35000*(1-(1+0.052)^(-12))/0.052 306,744 The present value is 306,744 B) If the payment is $ 35000 is semiannually for the next 12 years assuming the payment is being made at the end of period Interest rate (r) = 5.2/2 = 2.6 Periodic annual payment (p)= 35000 Number of payments(n) = 12*2 = 24 Present value = 35000*(1-(1+0.026)^(-24))/0.026 619,114.29 The investment worth today will be worth 619,114