What would be the present value of $365 a year for 20 years at a 14 % discount rate.
To find the present value of $365 received each year for 20 years at a 14% discount rate, we can use the formula for the present value of an annuity:
Present Value = Cash Flow / (1 + Discount Rate)^n
Where:
- Cash Flow is the amount received each year ($365 in this case)
- Discount Rate is the annual interest or discount rate (14% in this case)
- n is the number of years (20 in this case)
Let's calculate it step by step:
Step 1: Divide the discount rate by 100 to convert it into decimal form:
Discount Rate = 14% = 0.14
Step 2: Substitute the values into the formula:
Present Value = $365 / (1 + 0.14)^20
Step 3: Calculate the present value using a calculator or a spreadsheet:
Present Value ≈ $365 / (1.14)^20 ≈ $3,985.69
Therefore, the present value of receiving $365 a year for 20 years at a 14% discount rate is approximately $3,985.69.