Question

Peter Lynchpin wants to sell you an investment contract that pays equal $13,200 amounts at the end of each of the next 22 years. If you require an effective annual return of 9 percent on this investment, how much will you pay for the contract today?

Answer 1

Answer:

$124,640.02

Explanation:

To find how much one would pay for the contract today, one has to calculate the present value.

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator:

Cash flow each year from year one to twenty two = $13,200

Discount rate = 9%

Present value = $124,640.02

I hope my answer helps you