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Homework answers / question archive / 1) An investment is expected to generate cash flows of $20000 next year (at time t=1), and $10000 in two years at time t=2

1) An investment is expected to generate cash flows of $20000 next year (at time t=1), and $10000 in two years at time t=2

Finance

1) An investment is expected to generate cash flows of $20000 next year (at time t=1), and $10000 in two years at time t=2. After that, the annual cash flows generated by the investment will decrease forever at growth rate of -8% APR compounded annually. What is the present value of this stream of cash flows if r=10% APR compounded annually? (rounded to nearest 10th)

2) If you start depositing a constant $200 per month in a particular fund, starting next month, your advisor thinks you should have $936264.05 forty years later. What effective annual rate of return (EAR) is the advisor assuming that the fund will provide? (rounded to nearest basis point, as in "0.1234")

 

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