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a stream of cash flows that pays 100 every year for 10 years. the first cash...

a stream of cash flows that pays 100 every year for 10 years. the first cash flow is received at t=3. what is the Pv at time zero? what is the fav at time 12?

no discount rate

Solutions

Expert Solution

A discount rate is required to find the present value or future value.

If the discount rate is zero, present value or future value is simply the sum of cash flows.

Present value or future value = cash flow per year * number of years

Present value or future value = $100 * 10 = $1,000.

Assume the discount rate is 10%

FV at time 12 is calculated using FV function in Excel :

rate = 10%

nper = 10

pmt = -100 (This is entered with a negative sign because it is a payment)

FV is calculated to be $1,593.74

'

PV at time 2 is calculated using PV function in Excel :

rate = 10%

nper = 10

pmt = -100 (This is entered with a negative sign because it is a payment)

PV is calculated to be $614.46

PV at time 0 =  PV at time 2 / (1 + discount rate)2

PV at time 0 =  $614.46 / (1 + 10%)2

PV at time 0 =  $507.82

jeff jeffy answered 7 months ago
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