Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book.What is the present value of her royalty income if the opportunity cost is 12 percent?

Question

Quizplus · Accepted Answer

The present value of a future income stream is the current value of the future payments, discounted at the opportunity cost. In this case, Mary will receive $12,000 per year for the next 10 years, and the opportunity cost is 12%. The present value of her royalty income is:PV = $12,000 * (1 - (1 + 0.12)^-10) / 0.12= $12,000 * (1 - 0.3605) / 0.12= $12,000 * 0.6395 / 0.12= $67,800

Mary Will Receive $12,000 Per Year for the Next 10