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Homework answers / question archive / Assume that the correct discount rate for the following cash flows is 8%

Assume that the correct discount rate for the following cash flows is 8%

Finance

Assume that the correct discount rate for the following cash flows is 8%. Today is January 1, year 1. Calculate the present value of each of the following cash flows.                                          

a.  $50 at the end of 3 years, i.e., December 31, year 3

b. $50 at the end of 100 years, i.e., December 31, year 100

c.  $50 received at the end of each year for 20 years, i.e., December 31 each year from year 1 to year 20

d.  $50 received at the beginning of each year for 20 years, i.e., January 1 each year from year 1 to year 20

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Computation of Present Value:

a) $50 at the end of 3 years, i.e., December 31, year 3

Present Value = 50*PVIF(8%,3)

= 50*0.7938

= $39.69

.

b) $50 at the end of 100 years, i.e., December 31, year 100

Present Value = 50*PVIF(8%,100)

= 50* 0.0005

= $0.025

.

c) $50 received at the end of each year for 20 years, i.e., December 31 each year from year 1 to year 20

Present Value = 50*PVIFA(8%,20)

= 50* 9.8181

= $490.91

.

d) $50 received at the beginning of each year for 20 years, i.e., January 1 each year from year 1 to year 20

Present Value = 50 + 50*PVIFA(8%,19)

=50 + 50* 9.6036

= $50 + $480.18

= $530.18