Present Value

Present Value - > > What sum of money...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Someone owes Bob Kent's estate some money. The total amount owed is currently $389,000, but the payments are made monthly, over time and without interest. The guy wants to know how much I will accept today in cash as a final payment, in lieu of the income stream over time. > > The required payments are made in increments of $5,500 per month due on the last day of the month. The next payment will be due May 31st. However, in April and October of each year, the payments are $16,000 instead of $5,500. This income stream (again with no interest) will continue through October 2008, when the final amount owing of $13,500 will be due. > > With the foregoing in mind, the question is:
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: > > What sum of money today, invested at ___%, would equal the same amount of money I would have in October, 2008 under the stream of payments. Not being a math major, I can't do that calculation. In addition, of course, you have to factor in the fact that I have payments over time that can be invested and would produce some interest income between now and October 2008. This makes the calculation essentially rocket science for me. > > I'd like to know the answer in two or three scenarios. Perhaps at a 5% factor, a 7 1/2% factor, and 10% factor. > > Bottom line. What should I tell him I'd take today in cash? Your help and advice would be greatly appreciated....
View Full Document

Ask a homework question - tutors are online