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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