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Q: Accounting question ( Answered,   0 Comments )
Subject: Accounting question
Category: Business and Money > Accounting
Asked by: steph21480-ga
List Price: $2.00
Posted: 27 Nov 2006 05:22 PST
Expires: 27 Dec 2006 05:22 PST
Question ID: 785896
How much must be invested now to receive $20,000 for ten years if the
first $20,000 is received today, and the rate is 8%?

Request for Question Clarification by omnivorous-ga on 27 Nov 2006 07:19 PST
Steph --

When does the "$20,000 for 10 years" start?  A year from now?  Five years from now?

Best regards,


Clarification of Question by steph21480-ga on 27 Nov 2006 07:37 PST

I'm assuming that the ten year period starts now. Thanks for your help!!
Subject: Re: Accounting question
Answered By: omnivorous-ga on 27 Nov 2006 08:41 PST
Steph21480 --

This question asks: what is the future value of $20,000 paid annually
for 10 years, starting today if the interest rate is 8%?

Each year's payment will have a discount factor.  Year 1 is 1 --
because it is being paid today.  (Standard NPV calculations would
probably refer to year 1 as "year 0" because it is a current payment.)

Discount factor:
Year 1: 1.0000
Year 2: 0.925925926							
Year 3: 0.85733882
Year 4: 0.793832241
Year 5: 0.735029853
Year 6: 0.680583197
Year 7: 0.630169627
Year 8: 0.583490395
Year 9: 0.540268885
Year 10: 0.500248967

The total future value is $144,937.76.

This isn't part of the question but year 1's payment is $11,595.02 in
interest -- and $8,404.98 in principal.  Each year the "interest"
portion will drop -- and the "principal" portion will rise until the
enitre $144,937.76 is paid out.

Best regards,

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