Question

What is the present value of an investment that pays $10,000 every year at year-end for the next five years and $15,000 every year at year-end for years six through 10? The annual rate of interest for the investment is 9%. A $125,000.00 B $97,250.00 C $135,173.00 D $76,827.50

Answer 1

$76,817 approx

Step-by-step explanation:

The computation of the present value is shown below:

= Annual payments × PVIFA factor for 9% for 5 years + Annual payments × PVIFA factor for 9% for 6 to 10 years

= $10,000 × 3.8897 + $15,000 × 2.5280 (6.4177 - 3.8897)

= $38,897 + $37,920

= $76,817 approx

Refer to the PVIFA table

There is some change in the value due to the discount factor i.e 9%

We simply multiplied the annual payments with the PVIFA factor