i. Cash Flow equation including B variable.

Question

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Answer 1

Question

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

ii.

Cash Flow equation including variable C.

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

iii.

Cash Flow equation including variable V.

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

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Answer question 2 only.

1. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate fund, and the third is a (riskless) T-bill money market fund that yields a rate of 8%. The probability distributions of the risky funds have the following characteristics: Standard Deviation (%) Expected return (%) Stock fund (Rs) 20 30 Bond fund (RB) 12 15 The correlation between the fund returns is .10.

Answer 2

Question

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

ii.

Cash Flow equation including variable C.

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

iii.

Cash Flow equation including variable V.

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

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Answer 3

Question

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

ii.

Cash Flow equation including variable C.

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

iii.

Cash Flow equation including variable V.

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

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Answer 4

Question

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

ii.

Cash Flow equation including variable C.

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

iii.

Cash Flow equation including variable V.

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

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Answer 5

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

ii.

Cash Flow equation including variable C.

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

To determine

iii.

Cash Flow equation including variable V.

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

Answer 6

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

Answer 7

Chapter 4, Problem 45P

To determine

i.

Cash Flow equation including B variable.

Answer 8

Expert Solution

Answer to Problem 45P

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, year 4 has been taken as pivot point. The distance from point 4 is 0, distance from 2 is 1 and the distance from point 1 is 2. These are the points situated at right side of the pivot points. Hence, the value will be positive. These values will be compounded.

Since there exist no points at left side of the pivot points. Thus, the value will not be negative as a result there will be no discounted value.

Upside values will be added and downside values will be deducted.

Calculation:

With year 3 as the pivot point, the cash flow moment equation will be as follows

0=Compounded Values of right side cash flows− Discounted values of the left side cash flows

= (B(1+i)3+200(1+i)2+$200(1+i)1+$200(1+i)0− B(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

Answer 13

To determine

ii.

Cash Flow equation including variable C.

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

Answer 14

To determine

ii.

Cash Flow equation including variable C.

Answer 15

Expert Solution

Answer to Problem 45P

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

Calculation:

In this case, year 5 has been taken as pivot point. The distance from point is 2, distance from point 2 is 3 and distance from point 1 is 4. These are the points situated at the right side of the pivot point with upside direction Hence, the value will be positive These values will be compounded.

The distance from point 5 is -1. These are the points situated at left-side of the pivot point with downside direction. Hence, the value will be negative. These values will be discounted.

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= ($10(1+i)4+$10(1+i)3+$10(1+i)2− C×(1+i)−1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

Answer 20

To determine

iii.

Cash Flow equation including variable V.

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Conclusion:

Therefore, above equations will provide the equilibrium of the cash-flows at the given points.

Answer 21

To determine

iii.

Cash Flow equation including variable V.

Answer 22

Expert Solution

Answer to Problem 45P

= (V(1+i)4+$100×(1+i)3+V(1+i)2+$100(1+i)1).

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Given:

Cash- flow moment-equation.

Concept used:

Cash-flow movement equation shows equilibrium from a given pivot point.

Positive force is calculated from right side from pivot point. It is calculated by adding number of years at any pivot point.

Negative forces are discounted when calculation is done from left-side of pivot point.

In this case, Year 5 has been taken as pivot point. The distance from point 3 is 2, distance from point 2 is 3 and the distance from point 1 is 4. These are the points situated at right side of the pivot point with upside direction. Hence, the value will be positive. These values will be compounded. Since there exist no points at left side of the pivot point. Thus, the value will not be negative as a result there will be no discounted value.

Calculation:

With Year 4 as the pivot point, the cash flow moment equation will be as follows:

0=Compounded Values of upside cash flows− Discounted values of the down side cash flows