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Investment Appraisal (question)

Forums › FIA Forums › MA2 Managing Costs and Finance Forums › Investment Appraisal (question)

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by Ken Garrett.
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  • June 21, 2016 at 9:55 pm #323761
    hilalkhann7
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    An individual is to receive an annuity of $5000 for ten years, at the end of each year.
    The present value of the annuities is $33550. what is the cost of capital (r) ?

    need answer asap!

    June 22, 2016 at 3:50 pm #323821
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    To get the PV you would multiply 5000 by the 10 year cumulative discount factor

    Therefore, 10 year cumulative discount factor = 33,550/5,000 = 6.71

    Look in body of your cumulative discount tables, going along the 10-year figures until you get as close as you can to 6.71. Then read off the discount rate.

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