Consider a stream of cash flows, where you receive $2,000.00 per year for 20 years EXCEPT year 12 during which you receive only $1,000.00. If the current market rate of interest is 7.200% (compounded annually), then what is the present value of this stream of uneven cash flows? Hint: there are several ways to solve this problem but see if you can solve it using a single annuity formula.

Consider a stream of cash flows, where you receive $2,000.00 per year for 20 years EXCEPT year 12 during which you receive only $1,000.00. If the current market rate of interest is 7.200% (compounded annually), then what is the present value of this stream of uneven cash flows? Hint: there are several ways to solve this problem but see if you can solve it using a single annuity formula.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 12MC: (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest...

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Question

Consider a stream of cash flows, where you receive $2,000.00 per year for 20 years
EXCEPT year 12 during which you receive only $1,000.00. If the current market rate of
interest is 7.200% (compounded annually), then what is the present value of this stream of
uneven cash flows? Hint: there are several ways to solve this problem but see if you can
solve it using a single annuity formula.

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Step 2: Computation of level annuity of 2000 for 20 years @ 7.2%

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Step 3: Computation of PV of 1000 from T 12 @ 7.2%

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