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Homework answers / question archive / Given that year 1 cash flow is $1000
Given that year 1 cash flow is $1000. Suppose you are expected to receive cash flows that are growing at a constant rate of 4% starting from year 1 up to 4 years. What is the present value of these growing annuities if the required rate of return is 8%?
Year |
FV |
PV |
1 |
1,000 |
-$925.93 |
2 |
1000 x 1.04 = 1,040 |
-891.63 |
3 |
1040 x 1.04 = 1,081.60 |
-858.61 |
4 |
1,081.60 x 1.04 = 1,124.64 |
-826.81 |
The correct answer is in the above last column. But how do I calculate PV?
I tried using this formula but could not get the PV for each of the year: PV = FV/(1 + r)-t