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28 November, 19:55

An investment offers $8,600 per year for 17 years, with the first payment occurring one year from now. Assume the required return is 9 percent. What is the value of the investment today

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  1. 28 November, 22:25
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    Answer: $1,986.14

    Explanation: in order to calculate this, we will use the discounting formula and calculate the present value (PV) of the money.

    PV = C / (1 + r) ^n

    Where:

    PV = Present Value = ?

    C = value of money in the future = $8,600

    r = interest rate = 9% or 0.09

    n = number of years = 17

    PV = 8,600 / (1 + 0.09) ^17

    PV = 8,600 / (1.09) ^17

    PV = 8,600/4.33

    PV = 1,986.14

    Therefore the present value is $1,986.14
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