Answer: $2,591,420
Explanation: This investment is an annuity, a type of investment that adds an annual cashflow to the existing amount.
The formula for calculating annuities is:
Present Value = Cashflows X [tex]\frac{1-(1+r)^{-n}}{r}[/tex]
Annual Cashflow = $260,000
r = 3% or 0.03
n = 12 years
Using a present value table, look at the value under the 3% column and in front of the Period 12 row.
This value is 0.701 and the value of [tex]{(1+r)^{-n}[/tex] in the above equation.
PV = $260,000 X [tex]\frac{1 - 0.701}{0.03}[/tex]
PV = $260,000 X 9.967
$2,591,420
