What is the value today of $1,100 per year, at a discount rate of 8 percent, if the first payment is received 4 years from now and the last payment is received 23 years from today

The value today = $8,573.36

Explanation:

The value today of the investment would the present value of annuity of 1,100 receivable discounted at the at the rate of 8%.

The PV of the payment would be done as follows:

The number of payments would be 20 installments. Please be mindful not to say 19. Remember the first the payment occurs in year 4 which is inclusive.

PV = A × 1- ( (1+r)^(-n))/r

A- annual payment

r- rate of return

n- number of years

DATA

A- 1,100

r- 8%

n- 20

PV = 1,100 × 1- (1.08)^(-20)/0.08 =  10,799.96  

PV (in year 0) = PV in year 3× (1+r)^(-3)

PV (in year 0)  =10,799.96  × 1.08^(-3) =  8,573.36  

PV (in year 0) = $  8,573.36

The value today = $8,573.36

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