SOLUTION: can someone help with this problem:
suppose bob receives annual payments of $12,000 for as period of 10 years. the first payment will be made 4 years from now. if the interest r
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Question 997039: can someone help with this problem:
suppose bob receives annual payments of $12,000 for as period of 10 years. the first payment will be made 4 years from now. if the interest rate is 6%, what is the present value of the stream of payments?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
if the first payment is made 4 years from now, then the present value of the loan is 3 years from now.
if you want to bring that back to the present then you take the present value of that for 3 years.
here's a worksheet that shos you the calculations.
in the worksheet i calculatged it both ways.
one way was to get the individual cash flows and present value them to time point 0 which is the current time frame.
the second way was to use the present value of an annuity formula to get the present value in time point 3 and then present valued that to time point 0.
why time point 3?
because the present value of an annuity formula assumes end of year payment, so the first payment is in time point 4 and all payments are present valued back to time point 3.
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