An investment offers $5,600 per year for 15 years. with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment today? what is the present value? what is the value today if the payments occurred for 40 years? what would the value be today if the payments occurred for 75 years? What would the payment be today if if the payments occurred forever?
Use the following formula to find the PV:
PV=P{[1 + R]^N - 1 / [1 + R]^-N} / R
PV =5,600 x {[1 + 0.06]^15 - 1 / [1+0.06]^15} / 0.06
PV =5,600 x 9.71224899........
PV =$54,388.59 for 15 years.
Use the same formula as above but change the exponent to 40 years and you should get:
PV =$84,259.26 for 40 years.
PV =$92,152.75 for 75 years.
PV =$5,600 / 0.06 =$93,333.33 Perpetual annuity, or payments forever.
