A series of five payments in constant dollars, beginning with $6,000 at the end of the first year, are increasing at the rate of 5% per year. Assume that the average general inflation rate is 4%, and the market interest rate is 11%. What is the equivalent present worth of the series

The equivalent present worth of the series is $27,714.

Explanation:

We have a series of five payments (n=5), paid at the end of the year, starting with $6,000 and increasing at a rate of 5% per year.

The inflation rate is 4% and the market interest rate is 11%.

The equivalent present worth of the series, where we take into account yearly increments and discount the value by inflation and interest rate, is:

Where:

h: increment in the payments (5%)

i: rate of inflation (4%)

r: market interest rate (11%)

Then,

yup the answer is