An investment pays $1,000 per year for the first four years and $2,000 per year for six years following.If the required rate of return is 8 percent compounded annually,how much is this investment worth?

Question

Quizplus · Accepted Answer

To calculate the present value of the investment, we need to find the present value of the annuity for the first four years and the present value of the annuity for the next six years and then add them together.
PV of annuity for first four years: $1,000 * [(1-1/(1+0.08)^4)/0.08] = $3,312.10
PV of annuity for next six years: $2,000 * [(1-1/(1+0.08)^6)/0.08] = $10,696.94
Total PV = $3,312.10 + $10,696.94 = $14,009.04
Therefore, the investment is worth $10,108.04 (rounded to the nearest cent) today.

An Investment Pays $1,000 Per Year for the First Four