End of Year 1 2 Investment 3 4 5 A B $ 1,000 $1,000 2,000 1,000 3,000 1,000 (4,000) 1,000 4,000 3,000 Click on the icon in order to copy its contents into a spreadsheet.) What is the present value of each of these three investments if the appropriate discount rate is 9 percent? C $ 5,000 5,000 (5,000) (5,000) 15,000 a. What is the present value of investment A at an annual discount rate of 9 percent? (Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 9 percent?
End of Year 1 2 Investment 3 4 5 A B $ 1,000 $1,000 2,000 1,000 3,000 1,000 (4,000) 1,000 4,000 3,000 Click on the icon in order to copy its contents into a spreadsheet.) What is the present value of each of these three investments if the appropriate discount rate is 9 percent? C $ 5,000 5,000 (5,000) (5,000) 15,000 a. What is the present value of investment A at an annual discount rate of 9 percent? (Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 9 percent?
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
Transcribed Image Text:**Present Value of an Uneven Stream of Payments**
You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
| End of Year | Investment A | Investment B | Investment C |
|-------------|--------------|--------------|--------------|
| 1 | $1,000 | $1,000 | $5,000 |
| 2 | 2,000 | 1,000 | 5,000 |
| 3 | 3,000 | 1,000 | (5,000) |
| 4 | (4,000) | 3,000 | (5,000) |
| 5 | 4,000 | 3,000 | 15,000 |
(Note: Click on the icon to copy its contents into a spreadsheet.)
**Question: What is the present value of each of these three investments if the appropriate discount rate is 9 percent?**
1. **What is the present value of investment A at an annual discount rate of 9 percent?**
- $____ (Round to the nearest cent.)
2. **What is the present value of investment B at an annual discount rate of 9 percent?**
- $____ (Round to the nearest cent.)
3. **What is the present value of investment C at an annual discount rate of 9 percent?**
- $____ (Round to the nearest cent.)
Expert Solution
Step 1: Define=present value
Cash flow that is estimated to occur in the future, but indicated in today's equivalent value is termed as the present value.
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