A wealthy man just died and left his pet dogs the following estate: $20,000 per year for the next 11 years with the first cash flow today.At a discount rate of 4.2%,what is the doggy estate worth in today's dollars?
A)$98,352.84
B)$180,614.80
C)$220,000.00
D)$607,180.14

Question

Quizplus · Accepted Answer

We can use the formula for present value of an annuity to calculate the value of the doggy estate:
PV = C x [(1 - (1 / (1 + r)n)) / r]
where PV is the present value, C is the annual cash flow, r is the discount rate, and n is the number of years.

Plugging in the given values, we get:
PV = 20,000 x [(1 - (1 / (1 + 0.042)11)) / 0.042]
PV = $180,614.80

Therefore, the doggy estate is worth $180,614.80 in today's dollars.

A Wealthy Man Just Died and Left His Pet Dogs