An investment offers $4,350 per year for 15 years, with the first payment occurring one year from now. a. If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) b. What would the value be if the payments occurred for 40 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) c. What would the value be if the payments occurred for 75 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) d. What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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Business

Landyn Norris

1 July, 08:25

An investment offers $4,350 per year for 15 years, with the first payment occurring one year from now. a. If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) b. What would the value be if the payments occurred for 40 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) c. What would the value be if the payments occurred for 75 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) d. What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Valentina Stephens · Answer 1

Instructions are listed below

Explanation:

Giving the following information:

For this exercise, we need to find the present value of an investment using the following formula:

PV = ∑[Ct / (1+i) ^n]

Ct = annual payment

i = 0.06

1) n = 15

PV = $42,248.29

2) n = 40

PV = $65,451.39

3) n = 75

PV = 71,582.94

4) For a perpetual annuity we need to use the following formula:

PV = Ct/i = 4350/0.06 = $72,500