Many financial decisions require the analysis of uneven, or nonconstant, cash flows. -Select-v stock dividends typically increase over time, and investments in capitalequipment almost always generate uneven cash flows. The term cash flow (CFt) denotes -Select- v cash flows, while payment (PMT) designates -Select- v cash flows coming atregular intervals.The present value of an uneven cash flow stream is the sum of the PVs of the individual cash flows. The equation is:CFtCF1CF2CFNPV =(1+ 1)'(1+ 1)?(1+1)Nt=1 (1+ I)Similarly, the future value of an uneven cash flow stream is the sum of the FVs of the individual cash flows. Many calculators have an NFV key that lets you obtain the FV.However, ifyour calculator doesn't have a net future value (NFV) key, you can calculate the NFV as follows:NFV = NPV x (1 + I)N.One can also find the interest rate of the uneven cash flow stream with a financial calculator and solving for the-Select-v using the -Select- v key.Quantitative Problem: You own a security with the cash flows shown below.124610390270300Ifyou require an annual return of 12%, what is the present value of this cash flow stream? Do not round intermediate calculations. Round your answer to the nearest cent.$

Year -1 Cash flow is 610 Year -2 Cash flow is 390 Year -3 Cash flow is 270 Year -4 Cash flow is 300…

Answered: Quantitative Problem: You own a…

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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4. Present value Finding a present value is the reverse of finding a future value. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future. Which of the following investments that pay will $10,500 in 13 years will have a lower price today? O The security that earns an interest rate of 21.75%. O The security that earns an interest rate of 14.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 13.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options will exhibit the lower price? O An investment that matures in three years An investment that matures in four years Which of the following is true about present value calculations? O Other things remaining equal, the present value of a future cash flow increases if the investment time period…
Present and Future Values of Single Cash Flows for Different Interest Rates Use both the TVM equations and a financial calculator to find the following values. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.) Do not round intermediate calculations. Round your answers to the nearest cent. An initial $700 compounded for 10 years at 6%. $ An initial $700 compounded for 10 years at 12%. $ The present value of $700 due in 10 years at a 6% discount rate. $ The present value of $700 due in 10 years at a 12% discount rate. $
What is the NPV of the following cash flows if the required rate of return is 0.09? Year 0 1 2 3 4 CF -3,935 687 1,937 3,189 968 Enter the answer with 2 decimals (e.g. 1000.23).
Present and Future Values of Single Cash Flows for Different Interest Rates Use both the TVM equations and a financial calculator to find the following values. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.) Do not round intermediate calculations. Round your answers to the nearest cent. An initial $700 compounded for 10 years at 3%. $ An initial $700 compounded for 10 years at 6%. $ The present value of $700 due in 10 years at a 3% discount rate. $ The present value of $700 due in 10 years at a 6% discount rate. $
Find the present values of the following cash flow streams. The appropriate interest rate is 6%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Ch04 Tool Kit.xlsx.) Do not round intermediate calculations. Round your answers to the nearest cent. Year Cash Stream A Cash Stream B 1 $100 $250 2 400 400 3 400 400 4 400 400 5 250 100 Stream A: $ Stream B: $ What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest dollar. Stream A $ Stream B $
(Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: @ End of Year 1 W 5 2 3 4 12 5 s damaged 30 6 X 7 8 3 a. What is the present value of investment A at an annual discount rate of 21 percent? $(Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 21 percent? $(Round to the nearest cent.) c. What is the present value of investment C at an annual discount rate of 21 percent? (Round to the nearest cent.) 80 F3 E A $11,000 11,000 11,000 11,000 11,000 D C $ 4 DDD DOD F4 R Investment B F 1 $11,000 11,000 11,000 11,000 % 5 V is FS T G A 6 C $16,000 B 48,000 MacBook Air F6 Y & 7 H 44 F7 U N * CO 8 J DII FA 1 ( M 9 K MOSISO 19 O 1 0 V I 4 F10 11 P > command 4 ● FII + B = { [ I Next F12 .. ? option
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A product manager prepared the following forecasts for a product line: 1 3 4 5 6 and later 2 + $2m $2m $3m $4m $4m g=2.5% If the appropriate discount rate is 8.5%, what is the present value of these future cash flows?
4. Present value Finding a present value is the reverse of finding a future value. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future. Which of the following investments that pay will $19,000 in 14 years will have a higher price today? The security that earns an interest rate of 7.00%. The security that earns an interest rate of 10.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 9.60%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in five years An investment that matures in six years Which of the following is true about present value calculations? Other things remaining equal, the present value of a…
a. Find the present values of the following cash flow streams at a 6% discount rate. Do not round intermediate calculations. Round your answers to the nearest cent. 1 3 4 Stream A $0 $150 $400 $400 $400 $300 Stream B $0 $300 $400 $400 $400 $150 Stream A: $ Stream B: $ b. What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar. Stream A: $ Stream B: $

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Quantitative Problem: You own a security with the cash flows shown below. 1 3 610 390 270 300 If you require an annual return of 12%, what is the present value of this cash flow stream? Do not round intermediate calculations. Round your answer to the nearest cent.