An investment fund promises to pay $1,000 in two years, then$3,000 in four years, and...

An investment fund promises to pay $1,000 in two years, then $3,000 in four years, and finally $5,000 in six years. If the market requires a 6% return for similar investments, what is the fair price to pay for this fund?

A	$7,811.48
B	$9,088.00
C	$6,791.08
D	$7,630.46
E	$7,369.32

Expert Solution

Correct Answer is option C
Pv of inflow is calculated in excel =
=Pv(rate,nper,pmt,fv)
PRESENT VALUE OF remaining 2 years is
=PV(6%,2,0,-1000) = 890
and apply the same formula in excel for rest of the cashflow

Remaining years	cashflow	Present value
2	1000	890.00
4	3000	2376.28
6	5000	3524.80
Total	6791.08

jeff jeffy answered 2 years ago

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