Investment X offers to pay you $4,700 per year for 9 years, whereas Investment Y offers to pay you $6,400 per year for 5 years. a. If the discount rate is 8 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If the discount rate is 20 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Present value of Investment X at 8 percent Present value of Investment Y at 8 percent b. Present value of Investment X at 20 percent Present value of Investment Y at 20 percent
Investment X offers to pay you $4,700 per year for 9 years, whereas Investment Y offers to pay you $6,400 per year for 5 years. a. If the discount rate is 8 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If the discount rate is 20 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Present value of Investment X at 8 percent Present value of Investment Y at 8 percent b. Present value of Investment X at 20 percent Present value of Investment Y at 20 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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![Problem 5-2 Present Value and Multiple Cash Flows [LO 1]
Investment X offers to pay you $4,700 per year for 9 years, whereas Investment Y offers
to pay you $6,400 per year for 5 years.
a. If the discount rate is 8 percent, what is the present value of these cash flows? (Do not
round intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
b. If the discount rate is 20 percent, what is the present value of these cash flows? (Do
not round intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.)
а.
Present value of Investment X at 8 percent
Present value of Investment Y at 8 percent
b.
Present value of Investment X at 20 percent
Present value of Investment Y at 20 percent](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fca0ee9f0-26a0-4b69-a817-d7c752512585%2F9c247eb8-6644-499d-9902-8f4d8854a1c1%2Fau9hp9u_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 5-2 Present Value and Multiple Cash Flows [LO 1]
Investment X offers to pay you $4,700 per year for 9 years, whereas Investment Y offers
to pay you $6,400 per year for 5 years.
a. If the discount rate is 8 percent, what is the present value of these cash flows? (Do not
round intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
b. If the discount rate is 20 percent, what is the present value of these cash flows? (Do
not round intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.)
а.
Present value of Investment X at 8 percent
Present value of Investment Y at 8 percent
b.
Present value of Investment X at 20 percent
Present value of Investment Y at 20 percent
Expert Solution
Step 1 Analysis
Present value is calculated by discounting the future cash flows with appropriate discount rate. The following formula can be used for calculating present value of equal cash flows.
PV of cash flows =CF* [1-1/(1+i)n]/i
Where CF = Annual equal cash flow
i= Rate of discount
n= number of years
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