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A city engineer has estimated the annual toll revenues from a newly proposed highway construction over 20 years as follows:
An = ($2,000,000)(n)(1.06)n-1,
n = 1, 2,…., 20.
To validate the bond, the engineer was asked to present the estimated total present value of toll revenue at an interest rate of 6%. Assuming annual compounding, find the present value of the estimated toll revenue.
Answer :- An = ($2,000,000)(1.06)n-1 Interest rate = 6% Present value =($2,000,000)/(1 + 0.06) +($2,000,000)(1.06)/(1 + 0.06)^2 +($2,000,000)(1.06)^2/(1 + 0.06)^3…………….($2,000,000)(1.06)^19/(1 + 0.06)^20 As, Sn = a(1 -…

/(1 – r) In this case, a =($2,000,000)/(1 + 0.06) r = 1.06/1.06 = 1 Hence, An = [($2,000,000)/(1 + 0.06)]* (20) = [($2,000,000)/(1.06)]* (20) = $37,735,850

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