i) As per your own understanding of the cash flow pattern of deposits presented above, compute the valu of the investment at the end of vear 7. Clearly highlight all computational steps.- ii) Clearly indicate who, amongst John and Marsha, is conceptually correct in terms of the type of cash flow
i) As per your own understanding of the cash flow pattern of deposits presented above, compute the valu of the investment at the end of vear 7. Clearly highlight all computational steps.- ii) Clearly indicate who, amongst John and Marsha, is conceptually correct in terms of the type of cash flow
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
Related questions
Question
Explain and give answer
Transcribed Image Text:John and Marsha are in an argument about an
investment which requires a series of six annual
deposits.
If an investor decides to invest, he/she has to deposit
$30,000 at the end of year 1, $30,000 at the end of year
2, $30,000 at the end of year 4, $30,000 at the end of
year 5, $30,000 at the end of year 6 and $30,000 at the
end of year 7. The deposited amounts grow at a rate of
5% p.a.
The argument is about the nature of the cash flow
stream of the six deposits – whether the cash flows are
-
an annuity or a mixed stream. As per John's opinion, the
value of this investment at the end of year 7 will be
$244,260.25 while Marsha thinks that the value of this
investment at the end of year 7 will be $207,795.07
You are required to assist both in coming to a resolution
of the argument by doing as follows:
i) As per your own understanding of the cash flow
pattern of deposits presented above, compute the value
of the investment at the end of vear 7. Clearly highlight
all computational steps.
ii) Clearly indicate who, amongst John and Marsha, is
conceptually correct in terms of the type of cash flow
stream and why? If you feel that the cash flow stream is
an annuity, state your reasons. If you think it is a mix
stream, state vour reasons within 50-100 words
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 1 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education