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13 September, 14:36

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?

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  1. 13 September, 17:31
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    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
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