Question

Beginning in 6 years, (beginning of years 6, 7,8 and 9) Sally Mander will receive four annual benefit checks of $12,000 each. If Sally assumes an interest rate of 7%, what is the present value of these checks?

Answer 1

$28,980

Step-by-step explanation:

The present value can be calculated by multiplying annual cashflows with the discount factor. The table to calculate the Present Value has been made below.

DATA

Annual benefit = $12,000

Discount rate = 7%

Present value =?

Calculation

Year Cash inflows Discount factor Present Value

6 $12,000 0.666 $7,992

7 $12,000 0.623 $7,476

8 $12,000 0.582 $6,984

9 $12,000 0.544 $6,528

Total $28,980