Pearson Corporation makes an investment today (January 1, 2018). They will receive €25,000 every December 31st for the next six years (2018 - 2023). If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2018?

Question

Quizplus · Accepted Answer

This is a problem that involves calculating the present value of an annuity. The formula to calculate the present value of an annuity is PV = PMT * [(1 - (1 + r)^-n) / r], where PV is the present value, PMT is the payment amount, r is the interest rate per period, and n is the number of periods. Here, PMT = €25,000, r = 12% or 0.12, and n = 6 years. Plugging these values into the formula gives PV = €25,000 * [(1 - (1 + 0.12)^-6) / 0.12], which calculates to approximately €102,785.

Pearson Corporation Makes an Investment Today (January 1, 2018)