What would you pay for an investment that pays you €24,000 at the beginning of each year for the next ten years? Assume that the relevant interest rate for this type of investment is 10%.

Question

Quizplus · Accepted Answer

This requires calculating the present value of an annuity. Using the formula:
PV = (PMT * (1 - (1 + r)^-n)) / r
Where PV is the present value, PMT is the payment per year, r is the interest rate, and n is the number of years.

Plugging in the values: 
PV = (€24,000 * (1 - (1 + 0.10)^-10)) / 0.10
PV = €162,216.

Therefore, the best choice is B, €162,216.

What Would You Pay for an Investment That Pays You