Suppose the Interest Rate Is 5% and That You Are

question 9

Short Answer

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

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Definitions:

Initial Investment

The initial amount of capital used to start a business venture, purchase an asset, or make an investment.

Interest Allowance

A sum that lenders may offer to borrowers, reducing the effective cost or total amount of payable interest on a loan.

Interest Allowance Method

A method used in accounting to allocate payments on an installment loan between the principal and the interest expense.

Capital Investment

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.