PP2:

You've bought an inflation-adjusted annuity to give you a constant real income during your retirement years.

• The annuity will make 20 annual payments.
• The first payment of $80,000 will occur one year from now
• Annual payments will then grow at the rate of inflation, 3%, for 19 more years and then stop. (There are 20 total payments and the last payment is made at the end of year 20.)
• The interest rate is 8%.

What is the present value of this annuity if you do not recieve the first cash flow at the end of year 1?

(Everything else about the annuity remains the same. In other words, the first cash flow you recieve will be $80,000(1+0.03)$80,000(1+0.03) at the end of year 2, and the last cash flow you recieve will be $80,000(1+0.03)19$80,000(1+0.03)19 at the end of year 20.)