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21 May, 18:13

An investment offers $6,700 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 today? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) Present value $ b. What would the value today 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.) Present value $ c. What would the value today 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.) Present value $ d. What would the value today be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) Present value $

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  1. 21 May, 20:27
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    a.$65,072.07

    b.$100,810.19

    c.$110,254.18

    d.$111,666.67

    Explanation:

    a. The value of investment today if payment per year of $6,700 is made for 15 years is given as follows:

    Present value today=R[ (1 - (1+i) ^-n) / i]

    Where

    R=payment to made yearly=$6,700

    i=interest per annum=6%

    n=number of payments=15

    Present value today=6,700[ (1 - (1+6%) ^-15) / 6%]=$65,072.07

    b. The value of investment today if payment per year of $6,700 is made for 40 years is given as follows:

    Present value today=6,700[ (1 - (1+6%) ^-40) / 6%]=$100,810.19

    c. The value of investment today if payment per year of $6,700 is made for 75 year is given as follows:

    Present value today=6,700[ (1 - (1+6%) ^-75) / 6%]=$110,254.18

    d. The value of investment today if payment per year of $6,700 occurred forever

    Present value today=P/i=6,700/6%=$111,666.67

    where P=6,700, i=6%
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