What is the equivalent worth at the end of period 4 of 4 uniform per period...

What is the equivalent worth at the end of period 4 of 4 uniform per period amounts of 600 starting at the end of period 1 followed after that ends by 7 uniform period amounts of 800 using an interest rate of 7.00%.

Expert Solution

The cashflow can be given as follows. The second row contains the formula used.

Since the equivalent worth is to be found out at the end of Period 4, so the time to be considered is subtracted from 4. So The cashflow at end of year 1 is compunded for 3 years, the one at end of year 2 is compounded for 2 years.

The ones after year 4, i.e. the one at end of 5 years is compounded for -1 year which is the same as being discounted for 1 year.

The one at end of year 6 is discounted for 2 years and so on.

The equivalent worths of every cashflow is calculated at end of year 4 and added up.

End of Year	Time to be considered	Cashflow	Rate of Interest	EW
A	B=4-A	C	D	*E=C(1+D)^B**
1	3	600	7%	735.03
2	2	600	7%	686.94
3	1	600	7%	642.00
4	0	600	7%	600.00
5	-1	800	7%	747.66
6	-2	800	7%	698.75
7	-3	800	7%	653.04
8	-4	800	7%	610.32
9	-5	800	7%	570.39
10	-6	800	7%	533.07
11	-7	800	7%	498.20
			Total	6975.40

equivalent worth at the end of period 4 is 6975.40

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Rahul Sunny answered 8 months ago

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