What is the present value of the investment if the interest rate is   9 ​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
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You have an opportunity to make an investment that will pay ​$

 

300 at the end of the first​ year, ​$

 

100 at the end of the second​ year, ​$

 

200 at the end of the third​ year, ​$

 

400 at the end of the fourth​ year, and

 

$500 at the end of the fifth year.

 

a.  Find the present value if the interest rate is

 

9 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?

 

 

 

 

 

Question content area bottom

Part 1

a.  What is the present value of the investment if the interest rate is

 

9 ​percent?

 

​$

 

enter your response here

  ​(Round to the nearest​ cent.)

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