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