An investment pays $22,000 every other year forever with the first payment one year from today. a. What is the value today if the discount rate is 15 percent compounded daily? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) b. What is the value today if the first payment occurs four years from today? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

answered

Explanation:

What is the value of an investment that pays $22,000 every other year forever, if the first payment occurs one year from today and the discount rate is 15 percent compounded daily?

Effective 2 year rate = (1 + 15%/365) ^ (365*2) - 1 = 34.9776%

Effective Annual Rate = (1 + 15%/365) ^365 - 1

Effective Annual Rate = 16.1798%

Value of Investment at year 1 = 22000 + 22000/34.97756%

Value of Investment at year 1 = 84,897.577

Present Value of Investment = 84897.577 / (1+16.179844%)

Present Value of Investment = $ 494,169.661

Part B:

What is the value today if the first payment occurs four years from today?

Value of Investment at year 4 = 22000 + 22000/34.97756%

Value of Investment at year 4 = 84897.577

Present Value of Investment = 84897.577 / (1+16.179844%) ^4

Present Value of Investment = $ 46,598.52217