Problem 6-28 Discounted Cash Flow Analysis [LO1] The appropriate discount rate for the following cash flows is 768 percent per year. Year Cash Flow 1 $2,540 0 3,980 2,230 What is the present value of the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) 4 Present value 234
Problem 6-28 Discounted Cash Flow Analysis [LO1] The appropriate discount rate for the following cash flows is 768 percent per year. Year Cash Flow 1 $2,540 0 3,980 2,230 What is the present value of the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) 4 Present value 234
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
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![### Problem Set: Discounted Cash Flow Analysis (Chapter 6, Problem 6-28) [LO1]
#### Problem Description:
The appropriate discount rate for the following cash flows is 7.68 percent per year.
| Year | Cash Flow |
|------|-----------|
| 1 | $2,540 |
| 2 | $0 |
| 3 | $3,980 |
| 4 | $2,230 |
#### Question:
What is the present value of the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 3216.16.)
**Input Field:**
- Present Value: [ ]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F360d396f-34b9-4fcd-bdba-c0da0c29d2d4%2F5e224d30-aca2-4404-8292-fba07bc44e43%2Fjgzixqu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Problem Set: Discounted Cash Flow Analysis (Chapter 6, Problem 6-28) [LO1]
#### Problem Description:
The appropriate discount rate for the following cash flows is 7.68 percent per year.
| Year | Cash Flow |
|------|-----------|
| 1 | $2,540 |
| 2 | $0 |
| 3 | $3,980 |
| 4 | $2,230 |
#### Question:
What is the present value of the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 3216.16.)
**Input Field:**
- Present Value: [ ]
![### Problem 6-26: Calculating Annuity Present Values [LO1]
**Description:**
Beginning three months from now, you want to be able to withdraw $2,400 each quarter from your bank account to cover college expenses over the next three years. If the account pays 1.6 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
**Input Field:**
- **Present value:** [Text Box]
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---
This exercise focuses on the practical application of calculating the present value of an annuity. You need to determine the amount of money to deposit in your account today in order to make specific withdrawals periodically in the future, given a fixed interest rate.
**Mathematics Involved:**
You would typically use the present value formula for an annuity to solve this problem:
\[ PV = PMT \times \left(1 - (1 + r)^{-n}\right) / r \]
where:
- \( PV \) = Present Value
- \( PMT \) = Payment per period ($2,400)
- \( r \) = interest rate per period (1.6% or 0.016)
- \( n \) = number of periods (3 years × 4 quarters per year = 12 periods)
By plugging in the values, you can calculate the amount you need to have in the bank today.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F360d396f-34b9-4fcd-bdba-c0da0c29d2d4%2F5e224d30-aca2-4404-8292-fba07bc44e43%2Fjgwkcs_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Problem 6-26: Calculating Annuity Present Values [LO1]
**Description:**
Beginning three months from now, you want to be able to withdraw $2,400 each quarter from your bank account to cover college expenses over the next three years. If the account pays 1.6 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
**Input Field:**
- **Present value:** [Text Box]
**Navigation:**
- [Prev] (Button)
- [Next] (Button)
**Page Footer:**
- Page 24 of 25 (Pagination Indicator)
---
This exercise focuses on the practical application of calculating the present value of an annuity. You need to determine the amount of money to deposit in your account today in order to make specific withdrawals periodically in the future, given a fixed interest rate.
**Mathematics Involved:**
You would typically use the present value formula for an annuity to solve this problem:
\[ PV = PMT \times \left(1 - (1 + r)^{-n}\right) / r \]
where:
- \( PV \) = Present Value
- \( PMT \) = Payment per period ($2,400)
- \( r \) = interest rate per period (1.6% or 0.016)
- \( n \) = number of periods (3 years × 4 quarters per year = 12 periods)
By plugging in the values, you can calculate the amount you need to have in the bank today.
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