Nominal interest rate, Financial Management

You are considering an investment in a 40-year security. The security will pay $25 a year at the end of each of the first 3 years. The security will then pay $30 a year at the end of each of the next 20 years. The nominal interest rate is assumed to be 8%, and the current price (present value) of the security is $360.39. Given this information, what is the equal annual payment to be received from Year 24 through Year 40 (for example, for 17 years)?

$25 a year for the first 3 years

$30 at the end of each of the next 20 years

With a financial calculator, enter the following:

PMT = - $25,   N = 3 years,   I/Y = 8%,   FV = 0,   CPT PV for the 1st 3 years = $64.42

PMT = - $20,   N = 20 years,   I/Y = 8%,   FV = 0, CPT PV for the next 20 years = $193.36

N = 17 years,   I/Y = 8%,   FV = 0,   PV = - $360.39,   CPT PMT = $39.50

 

Posted Date: 2/22/2013 4:50:39 AM | Location : United States







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