Question

what is the present value of $7500 per year, at a discounted rate of 7.1%, of the first payment is received 6 years from now and the last payment is received 25 years from now

Answer 1

PV= $50,981.17

Step-by-step explanation:

First, we need to calculate the future value at the end of the period:

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

A= annual payment

FV= {7,500*[(1.071^19) - 1]} / 0.071

FV= $283,234.78

Now, the present value:

PV= FV/(1+i)^n

in this case n=25 years

PV= 283,234.78 / (1.071^25)

PV= $50,981.17