Question

Find the present value of $10,000 received at the start of every year for 20 years if the interest rate is J1 = 12% p.a. and if the first payment of $10,000 is received at the end of 10 years

Answer 1

The present value will be calculated as follows:

The interest for the 10 years:

$\text{Simple interest}=100000×10×12100=120000$

Therefore, the amount will be:

$\text{Amount} = 10000+12000=22000$

After 20yrs another payment received value of principal is 10000*20 = 200000

$\text{Simple interest}=20000×20×12100=48,000$

$\text{Amount} = 48,000+20,000=68,000$

Present value will therefore be:

$\text{Present value}=22000\times \dfrac{1}{(1+0.12)^{10}}+68000\times \dfrac{1}{(1+0.12)^{20}}$

$\text{Present value}=14,132.75$