Question

1. Find the present value of the following cash flow stream with an interest rate of 7%: Year 1 = $2,000 Year 2 = $4,000 Year 3 = $1,000 Year 4 = $6,000

2. Find the present value of the following ordinary annuity: $800 per year for 10 years at 6%

3. If you invest $5,000 in an investment which has an annual return of 10% but compounds every 6 months (instead of yearly), how much will it have after 6 years

Answer 1

1)
	Year	1	2	3	4		Total
	Cash flow	$       2,000	$       4,000	$       1,000	$       6,000
	Discount factor	0.9346	0.8734	0.8163	0.7629
	Present Value	$       1,869	$       3,494	$ 816	$       4,577		$       10,757
	Present value	=	$     10,757
2)	Present Value	=	Annuity *((1-(1+i)^-n)/i)			Where,
		=	800*((1-(1+0.06)^-10)/0.06)			i	6%
		=	$       5,888			n	10
3)	Future Value	=	Investment x (1+i)^n			Where,
		=	5000*(1+0.05)^12			i	5%
		=	$       8,979			n	12