A person who would work for 25 more years earning $100,000 per year and discounts the future at an interest rate of 5% per year has an annually-compounded discounted expected present value of current and future earnings equal to

Question

Quizplus · Accepted Answer

The annually-compounded discounted expected present value of future earnings can be calculated using the formula:

PV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n

Where PV is the present value, CF is the cash flow at time period n, r is the discount rate, and n is the number of time periods.

Substituting the given values, we get:

PV = ($100,000/(1+0.05)^1) + ($100,000/(1+0.05)^2) + ... + ($100,000/(1+0.05)^25)
PV = $1,396,005

Therefore, the answer is D ($1.4 million).

A Person Who Would Work for 25 More Years Earning