Question
An investment offers $5,650 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent,
An investment offers $5,650 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?
If the required return is 8 percent, what is the value of the investment?
This is the formula that I found:
PV = Pmt [1-(1+r)-n / r]
I worked through the first part of it here, but my answer is obviously wrong. Please explain what I did wrong, and walk me through these, so that I may learn. I have no idea about the "forever" calculation. I hate math with a passion.
= $5650 [1 (1+.08)-15 / .08]
= $5650 [1 1.08-15 / .08]
= $5650 [1 - 0.31524170496589 / .08]
= $5650 [1 3.9405213]
= $5650 * -2.9405213
= -16,613.945345 (WRONG, BUT WHY?)
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