Answer to Question #140345 in Finance for Jenelle Daniel

Question #140345
Betty Kay has a contract in which she will receive the following payment for the next 5 year: $1,000, $2,000, $3,000, $4,000 and $5,000. She will then receive an annuity of $8,500 a year for the end of the 6th through the end of the 15th year. She is offered a $30,000 to cancel the contract. If the payments are discounted at 14 percent should she cancel the contract? Show all workings.
Expert's answer

compute Present value of annuity at the end of 5th year

we know Pmt = 8500

N=10, and R =14%

compute the Present value of all cash flows including the PV of annuity.


Betty should not cancel the contract as payments have higher present value compared to 30000

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