I need help with the following problem:
Amres Corporation has the opportunity to receive 20,000 dollars right now, or, 3254.91 dollars per year for the next ten years. The first payment will be available after one year. For what rate of interest would the two options be of equal value ?
I tried the following way:
Since, the first installment will be given after the end of the 1st year, it won't accrue any interest for the 1st year. The equation thus formed is;
20,000 = 3254.91 + 3254.91/(1+r) + 3254.91/(1+r)^2 + 3254.91/(1+r)^3 + .....+ 3254.91/(1+r)^9.
Am I correct ? Where am I going wrong ? Kindly help.
Regards,
Nishant