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What is the value today of $3,600 received at the end of each year for eight years if the first payment is paid exactly four years from today and the discount rate is 12 percent?

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sadddamkashmiri801

Answer:

The present value of delayed annuity is $11366

Explanation:

The annuity is delayed annuity and the present value will be calculated in two step.

Step 1 Find the normal annuity starting from year 4 (Assume that the first payment is starting from year zero)

Now

Present Value at year 4 = Cash flow * Annuity factor

And annuity factor for first eight years assuming that the first cash flow is arising in the year 4, is 4.968

This implies that:

Present value at the start of the year 4 = $3600 * 4.968 = $17885

Step 2 Discount this present value at year 4 to back year zero

Present value at year zero = Present Value at year 4 * (1+r)^4

Present value at year zero = $17885 * 0.636 = $11366

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