Homework Answers
Answer
Present value of amount A is given by:
PV = A/(1 + r)n
where n= time , A = Amount and r = interest rate = 5% = 0.05
Hence Present value of 100 that has been withrawn after 1 year is given by:
PV = 100/(1 + 0.05)
Present value of 150 that has been withdrawn after 3 year is given by:
PV = 150/(1 + 0.05)3
Present value of 200 that has been withdrawn after 5 years is given by:
PV = 200/(1 + 0.05)5
Hence Net present worth of all withdrawals are :
NPW = 100/(1 + 0.05) + 150/(1 + 0.05)3 + 200/(1 + 0.05)5 = 381.52
Hence Net Present worth of these withdrawals = $381.52
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