It is the end of 2020. You plan to complete a Ph.D. in 5 years. Your...

It is the end of 2020. You plan to complete a Ph.D. in 5 years. Your favorite uncle has promised to help you with your school expenses by giving you the following amounts for Christmas:

Year	2021	2022	2023	2024	2025
Cash flow	1,200	1,600	1,800	2,000	2,200

Your uncle is fairly wealthy and very reliable. You currently have $10,000 in a savings account paying an annual interest rate of 8%.

Questions:

1. Create an Excel spreadsheet showing the years and cash flows as in the table above, then add a row that shows the number of years from now and another row that shows the present value of each cash flow. What is the sum of present values?

2. You also want to know how much each gift will be worth in 2025 if you save it. Add another row to your spreadsheet and calculate the value of each cash flow in 2025. What is the sum of all future values?

3.What is the present value of the sum of future values calculated in the previous part?

4. Now assume that the interest rate is 6%. What is the present value of all the gifts?

5. Still assume that the interest rate is 6%. What is the future value of all the gifts?

6. Now assume that the interest rate is 12%. What is the present value of all the gifts?

7. Still assume that the interest rate is 12%. What is the future value of all the gifts?

Solutions

Expert Solution

jeff jeffy answered 1 year ago

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