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

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Question 9
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
1 pts
Cash Flow (in actual dollars)
$20,500
$41,500
$36,500
$55,500
Transcribed Image Text:Question 9 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 1 pts Cash Flow (in actual dollars) $20,500 $41,500 $36,500 $55,500
Expert Solution
Step 1

 

Market Interest rate = 16%

General inflation rate = 4%

 

Real Interest rate = Nominal Interest rate – Projected inflation rate

Real interest rate = 16 -4

Real interest rate = 12%

 

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