(Present value of complex cash flows) You have an opportunity to make an investment that will pay $300 at the end of the first year, $500 at the end of the second year, $200 at the end of the third year, $400 at the end of the fourth year, and $400 at the end of the fifth year. a. Find the present value if the interest rate is 11 percent. (Hint You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the = NPV function in Excel or to use your CF key on a financial calculator-but you'll want to check your calculator's manual before you use this key. Keep in mind that with the NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF = 0.) b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent?
(Present value of complex cash flows) You have an opportunity to make an investment that will pay $300 at the end of the first year, $500 at the end of the second year, $200 at the end of the third year, $400 at the end of the fourth year, and $400 at the end of the fifth year. a. Find the present value if the interest rate is 11 percent. (Hint You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the = NPV function in Excel or to use your CF key on a financial calculator-but you'll want to check your calculator's manual before you use this key. Keep in mind that with the NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF = 0.) b. What would happen to the present value of this stream of cash flows if the interest rate were zero 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
Related questions
Question
question 13
Transcribed Image Text:(Present value of complex cash flows) You have an opportunity to make an investment that will pay $300 at the end of the first year, $500 at the end of the second year, $200 at the end of the third year, $400 at the end of the fourth year, and $400 at the end of the fifth year.
a. Find the present value if the interest rate is 11 percent. (Hint You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the = NPV function in Excel or to use your CF key on a financial calculator-but you'll want to check
your calculator's manual before you use this key. Keep in mind that with the NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF is the initial outlay or cash
flow at time 0, and, because there is no cash flow at time 0, CF = 0.)
b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent?
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 2 steps
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