Question

In: Finance

a. What is the present value of end-of-year cash flows of $7,000 per year, with the...

a. What is the present value of end-of-year cash flows of $7,000 per year, with the first cash flow received five years from today and the last one 40 years from today? Assume interest rate of 10%.

  1. $41,271.67
  2. $44,496.49
  3. $45,733.15
  4. $46,264.30
  5. $50,218.30

b. What is the value of a 30-year annuity that pays $1250 a year? The annuity’s first payment will be received on year 11. Also, assume that the annual interest rate is 6 percent for years 1 through 10 and 7 percent hereafter.

  1. $14,271.67
  2. $15,511.30
  3. c. $12,733.15
  4. $9,969.81
  5. $8,661.43

Solutions

Expert Solution

PV = CF Flow * PVF

Here those Cashflows are there from Year 5

OPtion 4 is Correct

Part B:

PVF is combination of Two, CFs are discounted till 10 years @7% & for first 10 Year @6%

OPtion 5 is correct.


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