question archive Your investment advisor recommends you the following investment
Your investment advisor recommends you the following investment
Subject:FinancePrice:2.87 Bought7
Your investment advisor recommends you the following investment. The investment will pay you every year over the next 18 years. The first payment is $1583 at the end of this year. The payments will grow by 17% every year thereafter. If the appropriate discount rate is 6%, how much would you be willing to pay for this investment today? (Note: retain at least four places of a decimal in your calculation)
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Answer:
time t = 18 years
g = 17%
r = 6%
first payment C = $1583
Present Value P =?
P = (C/(r-g))*(1-((1+g)/(1+r))^t)
= 1583/(6%-17%)*(1-(1.17/1.06)^18)
=-14390.9091*(1-5.9134)
=$70,708.82
