Suppose that you will receive annual payments of $10,000 for a period of 10 years. The first payment will be made 4 years from now. If the interest rate is 5%, what is the present value of this stream of payments?

The present value of this stream of payments is $41,758.

Explanation:

Monthly Payment = P = 10000

Interest rat = i = 0.05

Number of years = n = 10 years

Compounding Years = 10 - 4 = 6 years

PV of stream = (1 + r) ^-4 x [P (1 - (((1 + i) ^-n) / i)) ]

PV of stream = (1 + 0.05) ^-4 x [10000 (1 - (((1 + 0.05) ^-6) / 0.05)) ]

PV of stream = 0.8227 x 50756.92

PV of stream = $41,758