Question

The manager of Vanguard offers one financial asset that pays 2,000 dollars each even year. The asset will last 30 years and how much should you pay for it fairly today? Interest rate is 8% APR. Remember that for the total of 30 years the asset pays on the 2nd year, 4th year, 6th year, etc.

Answer 1

It wouldb e fair to pay up to $10,824.7917

Step-by-step explanation:

The asset will be yielding 15 payment

so we will calculte the present value using annuity for 2000 dollar time = 15

rate = 0.08 annual

We will convert this rate to bi-annual

(1.08 power 2) - 1 = 0.1664

Now we calculate the annuity present value

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C= 2000

time = 15

rate = 0.1664

`2,000 * (1-(1+0.1664)^(-15) )/(0.1664) = PV\\`

PV = $10,824.7917