Question

What is the present value​ (PV) of an investment that pays $60,000 every year for four years if the interest rate is 9​% ​APR, compounded​ quarterly?

Answer 1

PV= $798,757.88

Step-by-step explanation:

Giving the following information:

Cf= $60,000

i= 0.09/4= 0.0225

n= 4*4= 16

First, we need to calculate the future value using the following formula:

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

A= annual cash flow

FV= {60,000*[(1.0225^16) - 1]} / 0.0225

FV= $1,140,323.89

Now, the present value:

PV= FV/(1+i)^n

PV= 1,140,323.89/(1.0225^16)

PV= $798,757.88