30.4k views
0 votes
Baxter desires to purchase an annuity on January 1, 2014, that yields him five annual cash flows of $10,000 each, with the first cash flow to be received on January 1, 2017. The interest rate is 10% compounded annually. What is the cost (present value) of the annuity on January 1, 2014

User Slinky
by
7.5k points

1 Answer

5 votes

Answer:

$313,288.16

Step-by-step explanation:

Present value is the sum of discounted cash flows

present value can be calculated using a financial calculator

Cash flow in year 1 and 2 = 0

Cash flow in year 3 to 7 = $10,000

I = 10%

Present value = $313,288.16

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

User Ashishmohite
by
9.0k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories