Question

SIC PROBLEMs At an interest rate of 12%, the six-year discount factor is.507. How many dollars is S.507 worth in six years if invested at 12%? If the PV of $139 is $125, what is the discount factor? Ifthe cost ofcapital is 900, what is the PV of$374 paid in year 9? A project produces a cash flow of $432 in year 1, $137 in year 2, and $797 in year 3. If the cost ofcapital is 1500, what is the project's PV? If you invest $100 at an interest rate o fleco, hovmuchwilyo haveattheendofeightyears?

Answer 1

1.$1.

If the discount factor (i.e 0.507 here) is invested for the same number of years as discounted (i.e is 6 years in this case) , the investment will be worth $1 at the end of given period.

2.PV factor = Present value / discounted amount

=>125 / 139

=>0.89928.

3.PV of $374 @ 9% after 9 year = $374 / (1+r)^n

here,

r=9%=>0.09

n= number of years =9.

=>$374 / (1.09)^9

=>$172.20.

4.

year	cash flow	discounting factor @15%	cash flow * discounting factor
year 1	$432	1/1.15=>0.86956522	375.65
year 2	137	1/(1.15)^2=>0.75614367	103.59
year 3	797	1/(1.15)^3=>0.65751623	524.04
		total present value of Project	1,003.28

5.amount at the end of 8 years

=>amount invested *(1+r)^n

=>100*(1.15)^8

=>$305.90.