Question

An investment offers $6,000 per year, with the first payment occurring one year from now. The required return is 5 percent. What would the value be today if the payments occurred for 10 years?

Answer 1

The value of the investment today would be approximately $3,686.45.

Step-by-step explanation:

In order to calculate the value of the investment today, we can use the formula for the present value of an annuity. The formula is: Present Value = Payment / (1+r)^n, where Payment is the annual payment, r is the required return, and n is the number of years.

In this case, the payment is $6,000, the required return is 5% (or 0.05), and the number of years is 10. Plugging the values into the formula, we get: Present Value = $6,000 / (1+0.05)^10 = $6,000 / 1.6288946 = $3,686.45. Therefore, the value of the investment today would be approximately $3,686.45.