Ask Question
BusinessBusiness
17 April, 19:37

An investment, called a "deferred annuity" promises annual payments of $10,000, with the first payment occurring seven years from today. Your required rate of return is eight percent. What is the most that you would pay for this investment today?

+3
Answers (1)
  1. 17 April, 20:56
    0
    Today the investment is valued at $72,936.30

    Explanation:

    Giving the following information:

    An investment promises annual payments of $10,000, with the first payment occurring seven years from today. Your required rate of return is eight percent.

    We need to make two calculations. First, calculate the value of the perpetual annuity. Then find the present value today.

    We need to use the following formula:

    PV = Cf/i = 10,000/0.08 = 125,000

    Now, we can calculate the present value today:

    PV = FV / (1+i) ^n

    PV = 125,000 / 1.08^7 = $72,936.30

    Today the investment is valued at $72,936.30
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “An investment, called a "deferred annuity" promises annual payments of $10,000, with the first payment occurring seven years from today. ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Caleb owns a music store and is creating an ad group for musical instrument rentals. what would be the most appropriate landing page for his ad?
Answers (1)
On March 1, 2021, Bearcat lends an employee $16,000. The employee signs a note requiring principal and interest at 12% to be paid on February 28, 2022. Record the adjusting entry for interest at its year-end of December 31.
Answers (1)
Action Co. is attempting to decide whether or not to launch a new $10 million advertising campaign for a product whose sales have been lagging well below the projected sales for the product.
Answers (1)
In an emergency situation the driver should always contact the dispatcher? True or false
Answers (2)
Adam Plastics, Inc., manufactures plastic moldings for car seats. Its costing system utilizes two cost categories, direct materials and conversion costs. Direct materials are added at the beginning of production.
Answers (1)
New Questions in Business
Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $58,000, and Martin's capital balance $55,000. Hewlett and Martin have agreed to share equally in income or loss.
Answers (1)
Errors in accounting
Answers (1)
What amount would a person with actual cash value (ACV) coverage receive for three-year-old furniture destroyed by a fire? The furniture would cost $4,500 to replace today and had an estimated life of six years.
Answers (1)
The Propeller Division provides propellers for the Plane Division of a company. The standard unit costs for the Propeller Division are as follows: Direct materials $ 890 Direct labor 1,590 Variable overhead 575 Fixed overhead 385 Market price per
Answers (1)
Social Security is considered to be mandatory spending by the government. Question 38 options: True False
Answers (1)
Home » Business » An investment, called a "deferred annuity" promises annual payments of $10,000, with the first payment occurring seven years from today. Your required rate of return is eight percent. What is the most that you would pay for this investment today?
Sign Up Forgot Password?