alishakarmali
Answered

A 6-year investment will pay $1,500 at the end of this year, and the payments will grow at a rate of 3% per year. The required return is 10%. What is the present value of this investment?

Answer :

wizard123
The sum of payments must equal 110% of initial investment or present value.

[tex]1500(1+r+r^2...+r^5) = 1.1 PV \\ \\ 1500(\frac{r^6 -1}{r-1}) = 1.1 PV[/tex]
where r = 1.03
Subbing in 1.03 for r and solving for PV:

PV = 8820.56

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