Question

Ryan Campbell has invested in a fund that will provide him a cash flow of $11,700 for the next 20 years. If his opportunity cost is 8.5 percent, what is the present value of this cash flow stream?

Answer 1

Answer:

PV= $110,721.04

Explanation:

Giving the following information:

Annual payment= $11,700

Number of periods= 20 years

Interest rate= 8.5%

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

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

PV= 11,700*{(1/0.085) - 1/ [0.085*(1.085^20)]}

PV= $110,721.04