Question

Mike Carlson will receive $12,000 a year from the end of the third year to the end of the 12th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is ______.

Answer 1

$60,936

Step-by-step explanation:

Provided information,

$12,000 will be received at each year end from third year to 12th year end.

The discount rate provided = 10%

Therefore PVAF of 10% for third year end to 12th year end will be for $1

`= (1)/((1 + 0.10)^3) + (1)/((1 + 0.10)^4) + (1)/((1 + 0.10)^5) + (1)/((1 + 0.10)^6) + ............. (1)/((1 + 0.10)^1^2) = 5.078`

Here 0.10 = 10% discount rate

Value for $12,000 = $12,000
`*` 5.078

Present Value of $12,000 will be

= $60,936