Question

An investment offers $5,800 per year for 20 years, with the first payment occurring one year from now. a. If the required return is 7 percent, what is the value of the investment today

Answer 1

Present value of the investment= $61,445.28

Step-by-step explanation:

Giving the following information:

Annual payment= $5,800

Number of periods= 20 years

Interest rate= 7%

First, we need to calculate the future value of the investment:

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {5,800*[(1.07^20) - 1]} / 0.07

FV= $237,773.86

Now, the present value:

PV= FV / (1 + i)^n

PV= 237,773.86 / (1.07^20)

PV= $61,445.28