Question

An investment opportunity requires a payment of $910 for 12 years, starting a year from today. If your required rate of return is 6.5 percent, what is the value of the investment to you today

Answer 1

PV= $7,424.44

Step-by-step explanation:

Giving the following information:

Annual payment (A)= $910

Number of periods (n)= 12 years

Rate of return (i)= 6.5%

To calculate the value of the investment today (PV), we need to use the following formula:

PV= A*{(1/i) - 1/[i*(1 + i)^n]}

PV= 910*{(1/0.065) - 1/ [0.065*(1.065^12)]}

PV= $7,424.44