Problem 6-4 Calculating Annuity Present Value [L01 An investment offers $6,000 p

Question

Problem 6-4 Calculating Annuity Present Value [L01 An investment offers $6,000 per year, with the first payment occurring one year from now. The required return is 5 percent What would the value be today if the payments occurred for 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Book Hint Print b. What would the value be today if the payments occurred for 35 years? (Do not c. What would the value be today if the payments occurred for 65 years? (Do not d. What would the value be today if the payments occurred forever? (Do not round round intermediate calculations and round your answer to 2 decimal places, e.g 32.16.) round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) erences intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) a. Present value of 10 annual payments b. Present value of 35 annual payments c. Present value of 65 annual payments d. Present value of annual payments forever

Explanation / Answer

Hi,

Here we will use Present value formula of excel to find out present value of the annuities:

Formula = PV(rate,nper,pmt)

here rate = 5%

nper = payment term

pmt= $6000

hence for part a)

nper = 10 years

so present value of 10 annual payment = PV(5%,10,6000)= $46,330.41

b)  present value of 35 annual payment = PV(5%,35,6000)= $98,245.17

c) present value of 65 annual payment = PV(5%,65,6000)= $114,966.42

d) if payment occurs forever it will be perpetuity and formula for perpetuity = payment/interest rate

= 6000/0.05= $120,000

Thanks

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