Question

An investment offers $4,350 per year for 15 years, with the first payment occurring one year from now. a. If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would the value be if the payments occurred for 40 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What would the value be if the payments occurred for 75 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

For this exercise, we need to find the present value of an investment using the following formula:

PV= ∑[Ct/(1+i)^n]

Ct= annual payment

i= 0.06

1) n= 15

PV= $42,248.29

2) n= 40

PV= $65,451.39

3) n= 75

PV= 71,582.94

4) For a perpetual annuity we need to use the following formula:

PV= Ct/i= 4350/0.06= $72,500