Peter Lynchpin wants to sell you an investment contract that pays equal $12,100 amounts at the end of each of the next 21 years. If you require an effective annual return of 8 percent on this investment, how much will you pay for the contract today? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

Present Value = $121,203.32

Explanation:

Giving the following information:

Peter Lynchpin wants to sell you an investment contract that pays equal $12,100 amounts at the end of each of the next 21 years.

Rate of return = 8%

To calculate the present value, first, we need to determine the future value using the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = annual pay = 12,100

n = 21

i = 0.08

FV = {12,100*[ (1.08^21) - 1]} / 0.08

FV = $610,117.35

Now, we can determine the present value, therefore, the amount is worth today.

PV = FV / (1+i) ^n

PV = 610,117.35 / 1.08^21 = $121,203.32