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27 February, 12:35

An investment offers $5,900 per year for 15 years, with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e. g., 32.16))

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  1. 27 February, 16:34
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    Today, the investment is worth $31,997.29

    Explanation:

    Giving the following information:

    An investment offers $5,900 per year for 15 years, with the first payment occurring one year from now. The required return is 6 percent

    First, we need to calculate the final value, using the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual pay = 5,900

    n = 15

    i = 0.06

    FV = {5,900*[ (1.06^15) - 1]} / 0.06 = $137,328.22

    Now, we can determine the present value:

    PV = FV / (1+i) ^n

    PV = 137,328.22 / 1.06^25 = $31,997.29
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