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QUESTIÓN 3 Consider the following cash-flow sequence of returns (in thousands of dollars) at the end of the current year, and the next 5 years given as follows: 10 10 15 20 20 20 At a 10% nominal annual interest rate, the present value of the cash value sequence is given by 75,290 65,990 58,273 78,370

QUESTIÓN 3 Consider the following cash-flow sequence of returns (in thousands of dollars) at the end of the current year, and the next 5 years given as follows: 10 10 15 20 20 20 At a 10% nominal annual interest rate, the present value of the cash value sequence is given by 75,290 65,990 58,273 78,370

Essentials Of Investments
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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QUESTION 3 Consider the following cash-flow sequence of returns (in thousands of dollars) at the end of the current year, and the next 5 years given as follows: 10 10 15 20 20 20 At a 10% nominal annual interest rate, the present value of the cash value sequence is given by 75,290 65,990 58,273 78,370
Transcribed Image Text:QUESTION 3 Consider the following cash-flow sequence of returns (in thousands of dollars) at the end of the current year, and the next 5 years given as follows: 10 10 15 20 20 20 At a 10% nominal annual interest rate, the present value of the cash value sequence is given by 75,290 65,990 58,273 78,370
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Solution:

Discounting Approach or time-adjusted approach determines the present value of all future cash flows likely to be generated over the years. Discounting is the method, which is used to ascertain the worth of future payments/receipts today. The formula for calculating the discounting factor is shown below:

Finance homework question answer, step 1, image 1

where,

PV=present value

r=rate of interest

n=number of years

steps

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