Question

As a prospective share holder, you are offered a project that will pay you an income of #8000 in 5years time at 13% rate of discount. What is the present value your future dividend.

Answer 1

Solution:

Given, $FV=8000,i=13\%=0.13,n=5$

$i+1=(\dfrac{FV}{PV})^{1/n}$

Putting given values:

$0.13+1=(\dfrac{8000}{PV})^{1/5} \\\Rightarrow 1.13^5=\dfrac{8000}{PV} \\\Rightarrow PV=4342.79$