Given the cash flows in actual dollars provided in the following table, calculate the present worth value of actual cash flow. Assume that the market interest rate is 16% and the general inflation rate is at 4% each year. n 0 4 5 7 ԼՈ Cash Flow (in actual dollars) $20,500 $41,500 $36,500 $55,500 convert the cash flows to equivalent cash flows in constant dollars if the base year is time O. Calculate the present worth value of constant-dollar cash flow. The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at an interest rate (APR) of 9% compounded monthly. If the general inflation rate is 2% per month, find the actual-dollar value of the 20th payment of this loan. find the constant-dollar value of the 20th payment of the loan.

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
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1. Given the cash flows in actual dollars provided in the following table, calculate the
present worth value of actual cash flow. Assume that the market interest rate is 16% and
the general inflation rate is at 4% each year.
n
0
4
5
7
Cash Flow (in actual
dollars)
$20,500
$41,500
$36,500
$55,500
convert the cash flows to equivalent cash flows in constant dollars if the
base year is time O. Calculate the present worth value of constant-dollar cash flow.
2. The purchase of a car requires a $12,000 loan to be repaid in monthly installments for
four years at an interest rate (APR) of 9% compounded monthly. If the general inflation
rate is 2% per month, find the actual-dollar value of the 20th payment of this loan.
find the constant-dollar value of the 20th payment of the loan.
Transcribed Image Text:1. Given the cash flows in actual dollars provided in the following table, calculate the present worth value of actual cash flow. Assume that the market interest rate is 16% and the general inflation rate is at 4% each year. n 0 4 5 7 Cash Flow (in actual dollars) $20,500 $41,500 $36,500 $55,500 convert the cash flows to equivalent cash flows in constant dollars if the base year is time O. Calculate the present worth value of constant-dollar cash flow. 2. The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at an interest rate (APR) of 9% compounded monthly. If the general inflation rate is 2% per month, find the actual-dollar value of the 20th payment of this loan. find the constant-dollar value of the 20th payment of the loan.
Expert Solution
Introduction,

A loan payment is a regularly scheduled payment made by a borrower to a lender in order to repay the principal amount of the loan and the interest charged on the loan. Loan payments are typically made on a monthly basis and include both the principal and interest amounts owed. The exact amount of each payment can vary depending on the terms of the loan, such as the interest rate, the loan amount, and the loan repayment period. The loan payment helps the borrower to gradually reduce the outstanding balance of the loan, and over time, fully repay the loan and become debt-free.

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