Present value of complex cash flows) You have an opportunity to make an investment that will pay $100 at the end of the first year, $100 at the end of the second year, $300 at the end of the third year, $400 at the end of the fourth year, and $200 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 CF0 is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF0=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 $100 at the end of the first year, $100 at the end of the second year, $300 at the end of the third year, $400 at the end of the fourth year, and $200 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 CF0 is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF0=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
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(Present value of complex cash flows) You have an opportunity to make an investment that will pay
$100
at the end of the first year,
$100
at the end of the second year,
$300
at the end of the third year,
$400
at the end of the fourth year, and
$200
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
CF0
is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0,
CF0=0.)
b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent?
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