Question

Question 8 10 pts What would the value of an investment be if you were promised a 6% return with $1,000 monthly payments for 15 years and a lump sum paid at the end of $400,000? O $166,713 O $150,035 〇$281,496 O $340,748 o $247,680

Answer 1

Monthly Payment = P = $1000

Number of periods = n = 15*12 = 180 months

Interest Rate = r = 0.06/12 monthly

Lumpsum paid at end of 15 years = X = $400000

Present value of future payments = P/(1+r) + P/(1+r)² + .... + P/(1+r)ⁿ + X/(1+r)ⁿ

= P[1- (1+r)^-n]/r + X/(1+r)ⁿ

= 1000[1- (1+0.06/12)^-180]/(0.06/12) + 400000/(1+0.06/12)¹⁸⁰

= $281496.49 or $281496