Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Expert Solution
Step 1
Present Value of annuity = P * [1-1/(1+r)^n] /r
Where,
P = annual payment
r= rate of interest i.e. 12%
n = no of year i.e. 3
Present value of annuity =34000
34000 = P * [1-1/(1+0.12)^3] /0.12
34000 = P * [1-1/(1.12)^3] /0.12
34000 = P* [1-(1/1.404928)] /0.12
34000 = P * (1-0.711780248)/0.12
34000 = P * (0.288219752/0.12)
34000 = P * 2.4018312
P =34000 /2.4018312
P (Annual payment) = $ 14155.87
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