Question

Using the following to answer question 1(a) and 1(b) 1(a) What is PV in year 2? With interest rate 7%, calculate the PV of following cash flows. Year Payment 1,000 1,000 1,000 1,000 1,000 PV 2 4 QUESTION 2 4.8 points Save Answer what is the pv in year 4? With interest rate 7%, calculate the PV of following cash flows. Payment PV 1,000 1,000 1,000 1,000 1,000 4

Answer 1

Answer 1(a):

PV in year 2 = Year 2 payment + PV at year 2 of year 3 payment + PV at year 2 of year 4 payment+ PV at year 2 of year 5 payment

= 1000 + 1000 / (1+ 7%) + 1000/ (1 + 7%) ² + 1000 / (1 + 7%) ³

= 3,624.32

PV in year 2 = 3,624.32

Answer 1(b):

PV of cash flows = 4,100.20

Workings:

Answer 2(a):

PV in year 4 = Year 4 payment + PV at year 4 of year 5 payment

= 1000 + 1000 / (1+ 7%)

= 1,934.58

PV in year 4 = 1,934.58

Answer 2(b):

PV of cash flows = 4,100.20

Workings:

Please see workings of answer 1(b) above