An investor receives $250,000 at the end of each of the next 5 years

Finance Dec 27, 2020

An investor receives $250,000 at the end of each of the next 5 years. What is the present value of her investment, given that the interest rate is 5%?

	$1,082,369.17
	$1,250,000
	$979,407.71
	$1,332,369.17
	$1,000,000

Expert Solution

The amount is computed as follows:

Present value = Annual amount x [ (1 – 1 / (1 + r)ⁿ) / r ]

= $ 250,000 x [ (1 - 1 / (1 + 0.05)⁵ ) / 0.05 ]

= $ 250,000 x 4.329476671

= $ 1,082,369.17

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