The retirement benefit program from your employer will send you 240 monthly checks of $5,000 after...
The retirement benefit program from your employer will send you 240 monthly checks of $5,000 after you retire. The first check will be a month from your retirement. The interest and discount rates are 0.2%/month, compounded monthly. If you retire today, then what is the present value of this benefit program?
Homework Answers
In order to calculate present value of monthly payments for 240 months at discount rate of 0.2% (0.002), we need to follow following formula:
Here PV: present value
A= periodic payment i.e. $5,000
r = rate per period i.e. 0.002
N= number of periods i.e. 240
PV= $5,000 × [1 - ( 1/(1.002)240)] ÷ 0.002
PV = $5,000 × 190.45996
PV = $ 952,299.8 (approx $952,300)
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