1. A cash flow of $1,000.00 will be received in period 5. For this cash flow, the appropriate discount rate/period is 6.0%. What is the present value of this single cash flow? Use worksheet "Single-PV". 2. An annuity pays $80.00 each period for 5 periods. For these cash flows, the appropriate discount rate/period is 6.0%. What is the present value of this annuity? Use worksheet "Annuity-PV".
1. A cash flow of $1,000.00 will be received in period 5. For this cash flow, the appropriate discount rate/period is 6.0%. What is the present value of this single cash flow? Use worksheet "Single-PV". 2. An annuity pays $80.00 each period for 5 periods. For these cash flows, the appropriate discount rate/period is 6.0%. What is the present value of this annuity? Use worksheet "Annuity-PV".
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![**Single Cash Flow: Present Value**
**Inputs:**
- Single Cash Flow: $80
- Discount Rate/Period: 6%
- Number of Periods: 5
**Present Value using a Time Line:**
| Period | Cash Flows | Present Value of Each Cash Flow |
|--------|------------|---------------------------------|
| 0 | 0 | 0 |
| 1 | 80 | 75.4717 |
| 2 | 80 | 71.19972 |
| 3 | 80 | 67.16954 |
| 4 | 80 | 63.36749 |
| 5 | 80 | 59.78065 |
- **Present Value (Yellow Highlighted):** The total present value is not displayed here; typically, you would sum the present values of each cash flow.
**Present Value using the Formula:**
- **Present Value (Yellow Highlighted):** This would be the calculated present value using the formula, specifically:
\[
PV = \frac{CF}{(1 + r)^n}
\]
where \( CF = 80 \), \( r = 0.06 \), and \( n \) varies for each period.
**Present Value using the PV Function:**
- **Present Value (Yellow Highlighted):** This cell would display the present value calculated using Excel's PV function or a similar financial calculator function.
**Note:** The present value is a crucial concept in finance, representing the current worth of a future cash flow. The timeline approach helps break down the calculation across multiple periods, whereas formulas and functions provide streamlined computational methods.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb6ea49f2-aec0-47e4-ae21-0e0a47907cd1%2F20060977-fd59-4d23-ab4c-57ced756fe48%2Fd2pqhry_processed.png&w=3840&q=75)
Transcribed Image Text:**Single Cash Flow: Present Value**
**Inputs:**
- Single Cash Flow: $80
- Discount Rate/Period: 6%
- Number of Periods: 5
**Present Value using a Time Line:**
| Period | Cash Flows | Present Value of Each Cash Flow |
|--------|------------|---------------------------------|
| 0 | 0 | 0 |
| 1 | 80 | 75.4717 |
| 2 | 80 | 71.19972 |
| 3 | 80 | 67.16954 |
| 4 | 80 | 63.36749 |
| 5 | 80 | 59.78065 |
- **Present Value (Yellow Highlighted):** The total present value is not displayed here; typically, you would sum the present values of each cash flow.
**Present Value using the Formula:**
- **Present Value (Yellow Highlighted):** This would be the calculated present value using the formula, specifically:
\[
PV = \frac{CF}{(1 + r)^n}
\]
where \( CF = 80 \), \( r = 0.06 \), and \( n \) varies for each period.
**Present Value using the PV Function:**
- **Present Value (Yellow Highlighted):** This cell would display the present value calculated using Excel's PV function or a similar financial calculator function.
**Note:** The present value is a crucial concept in finance, representing the current worth of a future cash flow. The timeline approach helps break down the calculation across multiple periods, whereas formulas and functions provide streamlined computational methods.
Transcribed Image Text:**Present Value**
1. A cash flow of $1,000.00 will be received in period 5. For this cash flow, the appropriate discount rate/period is 6.0%. What is the present value of this single cash flow? Use worksheet “Single-PV”.
2. An annuity pays $80.00 each period for 5 periods. For these cash flows, the appropriate discount rate/period is 6.0%. What is the present value of this annuity? Use worksheet “Annuity-PV”.
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