10 What is the present value of a security that will pay 500

10. What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?

Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=$5000/1.07^20

=$5000*0.258419002

which is equal to

=$1292.10(Approx).