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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Business

Tyshawn

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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Answers (1)

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Lilia · Answer 1

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%