Question

An investment offers $8,500 per year for 15 years, with the first payment occurring 1 year from now. Assume the required return is 9 percent.

Requirement 1:
What is the value of the investment? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Value of the investment $--------

Answer 1

The value of the investment that offers $8,500 per year for 15 years, with payments starting one year from now and with a required return of 9 percent, is $68,510.85 when rounded to two decimal places.

Step-by-step explanation:

To calculate the value of the investment offering $8,500 per year for 15 years with the first payment occurring one year from now, we need to calculate the present value of an annuity. The formula to calculate the present value of an annuity is:

PV = Pmt x ((1 - (1 + r)^-n) / r)

Where:

• PV = Present Value of the annuity
• Pmt = Annual payment ($8,500)
• r = Required return (9% or 0.09)
• n = Number of years (15)

Applying the formula, we get:

PV = $8,500 x ((1 - (1 + 0.09)^-15) / 0.09)

Thus, the value of the investment is:

PV = $8,500 x ((1 - (1 + 0.09)^-15) / 0.09) = $8,500 x 8.0601 = $68,510.85

Remember to round the final answer to 2 decimal places as per the instruction.