Question

Present Value Computations

Assuming that money is worth 8%, compute the present value of

Round answers to the nearest whole numbe

3. The right to receive $1,000 at the end of each of the next six years.

Answer 1

The present value of the right to receive $1,000 at the end of each of the next six years, with an 8% interest rate, is approximately $4,111 when rounded to the nearest whole number.

`\[ PV = (C * (1 - (1 + r)^(-n)))/(r) \]`

Where:

- C is the annual cash flow (in this case, $1,000),

- r is the interest rate per period (8% or 0.08), and

- n = number of periods (6).

Substituting these values into the formula:

`\[ PV = (1,000 * (1 - (1 + 0.08)^(-6)))/(0.08) \]`

Calculating this expression gives the present value. I'll compute this for you. The present value (PV) of the right to receive $1,000 at the end of each of the next six years, assuming a 8% interest rate, is approximately $4,111.

The present value of an annuity, calculated using the formula PV = C * [(1 - (1 + r)^(-n)) / r], represents the current worth of a series of future cash flows. In this example, receiving $1,000 annually for six years at an 8% interest rate equates to a present value of approximately $4,111.