Johns Memorial Hospital has just been informed that a private donor is willing to contribute $3 million per year at the...
Johns Memorial Hospital has just been informed that a private donor is willing to contribute $3 million per year at the beginning of each year for ten years. What is the current dollar value of this contribution if the discount rate is 8 percent?
Homework Answers
PV of Annuity Due = P + P [ [ 1 - (1+r)^-(n-1) ] / r ]
P is Deposit each year
r is int Rate per anum
PV of Annuity Due = P + P [ [ 1 - (1+r)^-(n-1) ] / r ]
= $ 3M + $ 3M [ [ 1 - (1+0.08)^-(10-1) ] / 0.08 ]
= $ 3M + $ 3M [ [ 1 - (1.08)^-(9) ] / 0.08 ]
= $ 3M + $ 3M [ [ 1 - 0.05002 ] / 0.08 ]
= $ 3M + $ 3M [ [ 0.4998 ] / 0.08 ]
= $ 3M + [ $ 3M * 6.2469 ]
= $ 3 M + $ 18.74 M
= 21.74 M
PV of Annuity due is $ 21.74 M
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