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28 July, 10:08

Assume that you borrowed money from your grandmother to attend college. Your deal with her is that you will pay her $1,000 per year for the next ten years with the first payment occurring at the end of this year. If your discount rate is 5%, what is the present value of these ten payments?

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  1. 28 July, 11:17
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    PV = $7,721.73

    Explanation:

    Giving the following information:

    Your deal with her is that you will pay her $1,000 per year for the next ten years with the first payment occurring at the end of this year. If your discount rate is 5%.

    To calculate the present value we need to use the following formula:

    NPV = ∑[Cf / (1+i) ^n]

    For example:

    Year 4 = 1,000/1.05^4 822.70

    Year 8 = 1,000/1.05^8 = 676.84

    NPV = $7,721.73
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