Question

You will get paid by $900 at the end of each year for the next 7 years. Assume that the discount rate is 23 percent, what is the present value of this payment?

Answer 1

The present value of receiving $900 annually for 7 years at a discount rate of 23% is calculated using the present value of an annuity formula. The variables involved are the annual payment, the discount rate, and the number of payment periods. Insert these values into the formula to find the present value.

Step-by-step explanation:

To calculate the present value of receiving $900 at the end of each year for the next 7 years with a discount rate of 23%, we would use the formula for the present value of an annuity. This calculation is based on the concept that future cash flows are worth less today due to the time value of money. The formula for the present value of an annuity is:

PV = Pmt * [1 - (1 + r)^-n] / r

Where:

• PV is the present value of the annuity,
• Pmt is the annual payment ($900),
• r is the discount rate (23% or 0.23), and
• n is the number of periods (7 years).