Note the cash flow series in the graph. The amounts of 5,000 at years 2 and 4 and X are inflows to our savings account (assume X is equal to $6000), after making an investment of P at the end of year 0. The interest rate is compounded, and each time unit is one year. Assume the entire investment is recovered at the end of year 6.
Note the cash flow series in the graph. The amounts of 5,000 at years 2 and 4 and X are inflows to our savings account (assume X is equal to $6000), after making an investment of P at the end of year 0. The interest rate is compounded, and each time unit is one year. Assume the entire investment is recovered at the end of year 6.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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
Transcribed Image Text:i=2%
Inflow (+)
Outflow (-)
1
P=?
5,000
2 3
5,000
4 5
6
t in years
Note the cash flow series in the graph. The amounts of 5,000 at years 2 and 4 and X are inflows to our
savings account (assume X is equal to $6000), after making an investment of P at the end of year 0. The
interest rate is compounded, and each time unit is one year. Assume the entire investment is recovered at
the end of year 6.
Hint: Break down this cash flow into two three single payments
Calculate the value for P using compound interest calculations and leveraging the cash flow diagram
above
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