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Gotham City has considered paying an annual bonus to Batman (according to the considerations mentioned below)...

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Finance

Gotham City has considered paying an annual bonus to Batman(according to the considerations mentioned below) for helping themkeep the city of criminals clean. However, Batman prefers thepayment in a single display to the year 5. What single payment atthe end of year 5 is equivalent to a series of equal annualpayments of $ 850 Dlls, which in year 1 and end at the end of theyear 12? The interest rate is 7% annual compound

Answer & Explanation Solved by verified expert
4.5 Ratings (982 Votes)

Assuming rate of return is 9% and hance taking the PV factor @ 9%
Year Amount Interest Annual Cashflow (in$) PV factor @ 9% PV Of Cashflow
1 850 59.5                                 909.50                       0.92                   834.40
2                                 909.50                     63.67                                 973.17                       0.84                   819.09
3                                 973.17 68.12155                              1,041.29                       0.77                   804.06
4                              1,041.29 72.8900585                              1,114.18                       0.71                   789.31
5                              1,114.18 77.9923626                              1,192.17                       0.65                   774.83
TOTAL                4,021.70
Hence the Single one time payment which is made can be made at the end of Year 5 is 4021.70$

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Transcribed Image Text

Gotham City has considered paying an annual bonus to Batman(according to the considerations mentioned below) for helping themkeep the city of criminals clean. However, Batman prefers thepayment in a single display to the year 5. What single payment atthe end of year 5 is equivalent to a series of equal annualpayments of $ 850 Dlls, which in year 1 and end at the end of theyear 12? The interest rate is 7% annual compound

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