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Your uncle has said that if you agree to finish college he will give you equal payments of $1,500 at the end of each year for the next nine years. If the annual interest rate stays constant at 6%, what is the value of these payments in today’s dollars? Round your answer to the nearest whole dollar.

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facundobuzzetti

Answer:

PV= $10,202.54

Explanation:

Giving the following information:

Cash flow= $1,500

Number of periods= 9 years

Interest rate=  6%

First, we need to calculate the future value using the following formula:

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

A= annual cash flow

FV= {1,500*[(1.06^9) - 1]} / 0.06

FV= $17,236.97

Now, the present value:

PV= FV/(1+i)^n

PV= 17,236.97/(1.06^9)

PV= $10,202.54

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