You inherited an oil well. It have three years worth of oil left. Here is how much income this oil well is projected to bring you each year for the next three years:
Year 1: $310,000
Year 2: $520,000
Year 3: $490,000
Compute the present value of this stream of income for a discount rate of 5%.
Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future).
Your answer should be one number - the present value for this oil well at a 5% discount rate.
2007-02-05 08:30:03 · 3 answers · asked by Funtravel 1 in Science & Mathematics ➔ Mathematics
310000+.95(52000)+(.95)^2(490000)=801625
2007-02-05 08:35:05 · answer #1 · answered by bruinfan 7 · 0⤊ 0⤋
310000(1) + 520000(0.952) + 490000(0.907) = 1249470
the numbers in the brackets are found from the present value tables.
2007-02-05 08:41:59 · answer #2 · answered by balzan_bernice 1 · 0⤊ 1⤋
1254000
2007-02-05 08:45:09 · answer #3 · answered by Rocky 1 · 0⤊ 0⤋