An investment pays you $20,000 at the end of this year, and $10,000 at the end...
- An investment pays you $20,000 at the end of this year, and $10,000 at the end of each of the four following years (i.e., of year 2, 3, 4, 5). What is the present value (PV) of this investment, given that the interest rate is 4% per year?
Homework Answers
| Present Value = Future value/ ((1+r)^t) | |||||
| where r is the interest rate that is 4% and t is the time period | |||||
| present value of the investment = sum of present values of future cash flows | |||||
| Year | 1 | 2 | 3 | 4 | 5 |
| future cash flow | 20000 | 10000 | 10000 | 10000 | 10000 |
| present value | 19230.77 | 9245.56 | 8889.96 | 8548.04 | 8219.27 |
| sum of present values | 54133.61 | ||||
| The present value of this investment given the interest rate is 4% is $54133.61. | |||||
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