Question

An investment offers $6,200 per year for 20 years, with the first payment occurring one year from now. If the required return is 7 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ 65682.89 What would the value be if the payments occurred for 45 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ 84354.23 What would the value be if the payments occurred for 70 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ 87794.41 What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Present value $ 88571.43

Answer 1

Check the explanation

Step-by-step explanation:

Present Value = $ 6,200 * 1/( 1.07) ^ 1 +$ 6,200 * 1/( 1.07) ^2+$ 6,200 * 1/( 1.07) ^3+$ 6,200 * 1/( 1.07) ^4+ .... +$ 6,200 * 1/( 1.07) ^20

= $ 65,682.89

Hence the correct answer is 65682.89

Present Value = $ 6,200 * 1/( 1.07) ^ 1 +$ 6,200 * 1/( 1.07) ^2+$ 6,200 * 1/( 1.07) ^3+$ 6,200 * 1/( 1.07) ^4+ .... +$ 6,200 * 1/( 1.07) ^45

= $ 84,354.23

Hence the correct answer is 84354.23

Present Value = $ 6,200 * 1/( 1.07) ^ 1 +$ 6,200 * 1/( 1.07) ^2+$ 6,200 * 1/( 1.07) ^3+$ 6,200 * 1/( 1.07) ^4+ .... +$ 6,200 * 1/( 1.07) ^70

= $ 87,794.41

Hence the correct answer is 87794.41

Present Value = Cash Flow / Rate of Interest

= $ 6,200 / 7%

= $ 88,571.43

Hence the correct answer is 88571.43