Question

I have some good news and some bad news. The bad news is: no member of you family has ever lived past age 60. The good news is: think of how much social security money you family has saved the rest of us! Anyway you just "celebrated" your 40th birthday (complete with all those lovely black balloons that read, "Over The Hill"). Since you are certian the grim reaper will visit you in 20 years, you decide to purchase an investment that will pay you $4,800 each year until you"reach room temperature" - that is - age 60. If this investment returns 8% to you, how much should you be willing to pay for it? ("pay for it", as in TODAY!)

Answer 1

Answer: The maximum amount you would be willing to pay for the investment is approximately $870,552.37, assuming an 8% return and living until age 60.

Step-by-step explanation: To calculate the maximum amount you would be willing to pay for the investment, you need to determine the present value of the future cash flows. Since the investment pays $4,800 annually until you reach age 60, which is 20 years from now, and assuming an 8% return, you can use the present value formula to calculate the present value of these cash flows. The result is approximately $870,552.37, which represents the maximum amount you would be willing to pay for the investment given your expected return and time frame.