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Ryan Campbell has invested in a fund that will provide him a cash flow of $11,700 for the next 20 years. If his opportunity cost is 8.5 percent, what is the present value of this cash flow stream? (Round to the nearest dollar.)

Respuesta :

Answer:

The correct answer is $110,721.

Explanation:

According to the Scenario, the given data are as follows

Payment (pmt) = $11,700

Time period (t) = 20 years

Rate of interest (r) = 8.5%

So, we can calculate the present value of this cash flow stream by using following formula:

PV = PMT × (( 1 - (1+r)^(-t)) / r

So, by putting the value, we get

= $11,700 × (( 1 - (1 + 0.085)^-20)) / 0.085

= $11,700 × ( 1 - 0.19561638835) / 0.085

=  110721.0383094706

= $110,721

Hence, the present value of this cash flow stream is $110,721.

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