Question

Ben sold his small online business for $100,000. The purchaser will pay him $20,000 today, then $20,000 every year for the next four years. Assume that Ben could invest a lump-sum payment today in an account yielding an interest rate of 4% annually. Find the total present value of all five payments.

A.
$87,096
B.
$88,384
C.
$92,598
D.
$93,964

Answer 1

c. 92,598

Explanation:

20000 + 20000/1.04 + 20000/(1.04^2) + 20000/(1.04^3) + 20000/(1.04^4)= 20000 + 19230.77 + 18491.12 + 17779.73 + 17096.08

= 92597.

= 92,598