The question is asking for the present value of $8,000 per year, when the risk-free rate is 2.5% compounded annually. You didn't say when the first $8,000 was payable - now or at the end of the year - it will somewhat affect the answer. I'm assuming payable at the end of the year.

So A=8000[ v + v^2 + ... + v^13], where v is the discount rate of 1/(1.025).

So A=8000 [(v^14 - v)/ (v-1)]=$87,865.48.

What Paul says is partially true, that 2.5% of $320,000 does equal $8,000 per year.

Not sure how if Lenards math is correct $87k to pay out $8,000 per year. That is closer to 10% and as for being risk free... No such thing.

As for the Banks... good luck with the 1.2% per year they are giving you Paul, if you can live off that.... then more power to you.

When it comes to investing there are so many things to choose from. Definitely not an easy answer. But stick to the numbers, numbers don't lie. $8,000 is 2.5% of $320,000

None of this is clear to me, but to get $8000 year at a rate of 2.5%, you'd have to invest $320,000.

I would not invest anywhere if someone I was not familiar with said it was risk-free. Sounds too much like Bernie Madoff.

I trust banks (guaranteed by U.S. government), some of the larger mutual funds. And no one else. Don't be a chump.

A company is offering an investment that pays $8,000 per year for 13 years. If the investment is risk free, and the relevant risk free interest rate is 2.5% per year compounded annually, how much would you be willing to pay for the investment?