Question

Beginning a year from now, Clancy Wiggum will receive $80,000 a year from his pension fund. There will be ten of these annual payments, What is the present value of these payments if a three percent annual interest rates is applied as the discount rate?

Answer 1

Answer:

$561,600

Explanation:

Present value of Payments =  the cash flow per period x [(1-(1+rate of interest)^-frequency of payments)/rate of interest]

Present value of Payments =  C x [(1-(1+i)^-n)/i]

Present value of Payments =  80,000 x [(1-(1+3%)^-8)/3%]

Present value of Payments =  80,000 x [(1-(1+0.03)^-8)/0.03]

Present value of Payments =  80,000 x 7.020

Present value of Payments =  561,600