Question

In: Economics

A continuous series of cash flows totaling $2,500 per year are made to a fund paying...

A continuous series of cash flows totaling $2,500 per year are made to a fund paying 9 percent compounded continuously.

A What will the fund amount to after 5 years? $

B What is the present worth equivalent of the total set of payments? $

Solutions

Expert Solution

A) Here, A = 2500, r = 9% , t = 5

Future Value = A[(ert - 1) / (er - 1)]

                     = 2500[(e0.09*5 - 1) / (e0.09 - 1)]

                     = 2500[(1.5683 - 1) / (1.0942 - 1)]

                     = 2500(0.5683 / 0.0942)

                     = $15,082.27

B) Present Value = FV / ert

                            = 15,082.27 / e0.09*5

                            = 15,082.27 / 1.5683

                            = $9,916.95

Rahul Sunny answered 2 days ago
Next > < Previous

Related Solutions

You are the beneficiary of a trust fund that will start paying you cash flows in...
You are the beneficiary of a trust fund that will start paying you cash flows in 5 years. The cash flows will be $ 19933 per year and there will be a total of 35 yearly cash flows paid. If the interest rate is 5.5 % per​ year, what is the value needed in the trust fund now to fund these cash​ flows?
Cash flow series Annual Cash Flow ($ per year) Annual Cash Flow ($ per year) Annual...
Cash flow series Annual Cash Flow ($ per year) Annual Cash Flow ($ per year) Annual Cash Flow ($ per year) Year Prob = 0.3 Prob = 0.22 Prob = 0.48 0 –5000 –6000 –4000 1 1000 500 3100 2 1000 1500 1200 3 1000 2000 100 Determine the expected present worth of the following cash flow series if each series may be realized with the probability shown at the head of each column. Let i = 20% per year....
Assume continuous compounding. Year (t) Bond A's Cash Flows Bond B's Cash Flows 1 0 100...
Assume continuous compounding. Year (t) Bond A's Cash Flows Bond B's Cash Flows 1 0 100 2 0 100 3 0 100 4 0 100 5 1000 1100 The yield to maturity on both bonds is 5.5%. a. What are the current prices for the bonds? b. What is the duration for each of the bonds? c. If the yield to maturity of both bonds were to increase 85 basis points, what would be the approximate percentage change in the...
PB Investments is investing $50,000 for a client into a bond fund paying 4.5% per year...
PB Investments is investing $50,000 for a client into a bond fund paying 4.5% per year and into a stock fund paying 6% per year. PB Investments always places 5% of a portfolio into a noninterest bearing cash account for safety. The amount invested into stocks should be no more than 3 times the amount invested into bonds. At least 25% of the market investment should be in bonds. At least 40% of the return should come from bonds. Formulate...
You purchased 2,500 shares of the ABC Fund at a price of $38 per share at...
You purchased 2,500 shares of the ABC Fund at a price of $38 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12 % during the year. The fund's expense ratio is 1.5%. What is your rate of return on the fund if you sell your shares at the end of the year? (Do not round intermediate calculations. Round your answer to 2...
16. Uneven cash flows A series of cash flows may not always necessarily be an annuity....
16. Uneven cash flows A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 $250,000 $37,500 $180,000...
1) A series of cash flows may not always necessarily be an annuity. Cash flows can...
1) A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 $100,000 $20,000 $480,000 $450,000 $550,000 The...
A series of cash flows may not always necessarily be an annuity. Cash flows can also...
A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $400,000 $37,500 $480,000 $450,000 $550,000...
16. Uneven cash flows A series of cash flows may not always necessarily be an annuity....
16. Uneven cash flows A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 $250,000 $37,500 $180,000...
A $300,000 investment is made with anticipated cash flows of $65,000 a year for twelve years...
A $300,000 investment is made with anticipated cash flows of $65,000 a year for twelve years and a final payment of $261,100 in year thirteen. a.) What is the expected return on this investment? b.) What would one pay for this investment and the end of year five assuming a required rate of return equals 21% and the expected cash flows are not expected to change? c.) What return would the seller earn? d.) Assume that expectations have changed at...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT