Finance Question

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
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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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