Determine the present value of the mixed stream of cash flows using a 5% discount rate. b. Suppose you had a lump sum equal to your answer in part a on hand today. If you invested this sum for 5 years and earned a 5% return each year, how much would you have after 5 years? c. Determine the future value 5 years from now of the mixed stream, using a 5% interest rate. Compare your answer here to your answer in part b. d. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your investments?
Determine the present value of the mixed stream of cash flows using a 5% discount rate. b. Suppose you had a lump sum equal to your answer in part a on hand today. If you invested this sum for 5 years and earned a 5% return each year, how much would you have after 5 years? c. Determine the future value 5 years from now of the mixed stream, using a 5% interest rate. Compare your answer here to your answer in part b. d. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your investments?
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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a.Determine the present value of the mixed stream of cash flows using a 5% discount rate.
b. Suppose you had a lump sum equal to your answer in part a on hand today. If you invested this sum for 5 years and earned a
5% return each year, how much would you have after 5 years?
c. Determine the future value 5 years from now of the mixed stream, using a 5% interest rate. Compare your answer here to your answer in part b.
d. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your investments?
Transcribed Image Text:(Click on the icon here a in order to copy the contents of the data table below
into a spreadsheet.)
Year (t)
Cash flow
$0
$700
$1,000
$1,100
$1,400
$1,900
1
2
3
4
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