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"What is the value today of $1,400 per year, at a discount rate of 10 percent, if the first payment is received 5 years from now and the last payment is received 26 years from today

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facundobuzzetti

Answer:

Present Value= $7,518.22

Explanation:

Giving the following information:

Cash flow= $1,400 per year

Interest rate= 10 percent

Number of years= 21 years

5 years from now a

First, we need to calculate the value of the investment 5 years from now. To do that, we determine the final value and then the present value.

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {1,400*[(1.10^21)-1]}/0.1

FV= 89,603.50

PV= FV/(1+i)^n

PV= 89,603.50/ (1.1^21)

PV= 12,108.17

Finally, the value today:

PV= 12,108.17/1.1^5

PV= $7,518.22

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