Question

Peter Lynchpin wants to sell you an investment contract that pays equal $13,800 amounts at the end of each year for the next 16 years. If you require an effective annual return of 7 percent on this investment, how much will you pay for the contract today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

= $130,363.75

Step-by-step explanation:

Given data:

total cost of contract at each year = $13800

time for contract, n 16 year

annual rate if return, i 7%

Present Value ordinary annuity PVOA

`PVOA = PMT (1 - (1)/((1 + i)^n))/( i)`

`= 13,800[((1 - (1)/(1.07^(16))))/(0.07)]`

`=13,800[((1 - 0.33873))/(0.07)]`

`=13,800[9.44665]`

= $130,363.75