Today is january 1, 2020. On january 1 of the years 2021 through 2030, you are to receive $50,000. If cash flows are discounted at 10% per year, the present value of these cash flows (as of today), rounded to the nearest dollar, is
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Answer:
Present Value = $691,220.29
Explanation:
PV of annuity using annuity due formula for $50,000
= PMT*(1+r)*(1-(1+r)^-n)/r
= $50,000*(1+10%)*((1-(1+10%)^-20)/10%)
= $468,246.0046
PV of annuity using annuity due formula for $25,000 after 6 months from today
= PMT*(1+r)*(1-(1+r)^-n)/r
= $25,000*(1+10%)*((1-(1+10%)^-20)/10%)
= $234,123.0023
PV of these payments
= $468246.0046 + $234123.0023/(1+5%)
= $691,220.29
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