Sort team in efforWSowe ne searon uwnth the firt payment nli

Sort team in efforW-Sowe ne searon uwnth the firt payment nlian dollat al the end or the (ist year ond he p.llauing innual paymealt grouny a7/per yeor. The plager boe lieve the dicant ratefr d) 23,62,56

Solution

answer is c) 12405955

We need to use the formula for PV of a growing annuity

P= first payment

r = discount rate , g = growth rate , and n = no of periods

PV = P/(r-g) *[1-(1+g/1+r)ⁿ] = 1000000/(0.13-0.07) *[1- (1+0.07/1+0.13)²⁵] = 12405955 (rounded to the nearest dollar)