Question

Your boss asks you to re-enter the following table in a new spreadsheet. The problem is that she spilled coffee on the paper and one of the values (for Year 4) is smeared and illegible. Here is what you know. The Present Value of the five annual payments is $4,963 and the discount rate is 5.6%. What is the nominal Year 4 payment (rounded to nearest whole dollar)? Year Nominal Cash flow $808 $977 $1,150 2 4 5 llegible $1,485 O A.$ 998 $1.096 O C.$1,175 O D.$1,214 O E.$1,510

Answer 1

Present value of cash flows=cash flows*Present value of discounting factor(rate%,time period)

4963=808/1.056+977/1.056^2+1150/1.056^3+nominal year 4 payment/1.056^4+1485/1.056^5

4963=3748.708766+nominal year 4 payment/1.056^4

nominal year 4 payment=(4963-3748.708766)*1.056^4

=$1510(Approx).