Question

Today is 1/1/2009. For 20 years, I receive $50,000 on the first day of each year and $25,000 on the first of July each year. If I discount cash flows at 10% annually, what is the present value (rounded to the nearest thousand dollars) of these payments?

Answer 1

Answer:

PV of annuity using annuity due formula for 50000 =PMT*(1+r)*(1-(1+r)^-n)/r =50000*(1+10%)*((1-(1+10%)^-20)/10%)

=468246.0046

PV of annuity using annuity due formula for 25000 after 6 months from today =PMT*(1+r)*(1-(1+r)^-n)/r =25000*(1+10%)*((1-(1+10%)^-20)/10%)

          =234123.0023

PV of these payments =468246.0046+234123.0023/(1+5%)

                                      =691220.29