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Present Value

Present Value - >> What sum of money today invested at...

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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:
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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....
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