Question

31.

You are valuing an investment that will pay you $25,000 per year for the first 6 years, $29,000 per year for the next 11 years, and $55,000 per year the following 13 years (all payments are at the end of each year). Another similar risk investment alternative is an account with a quoted annual interest rate of 12.00% with monthly compounding of interest. What is the value in today's dollars of the set of cash flows you have been offered?

$1,184,000.00

$241,479.10

$227,393.99

$285,669.77

$207,180.94

Answer 1

Answer is $ 227393.99
Year	Cashflows	PVF at 12.6825%		Present values
1	25000	0.887449		22186.23
2	25000	0.787566		19689.15
3	25000	0.698925		17473.13
4	25000	0.62026		15506.51
5	25000	0.55045		13761.24
6	25000	0.488496		12212.4
7	29000	0.433516		12571.95
8	29000	0.384723		11156.97
9	29000	0.341422		9901.243
10	29000	0.302995		8786.851
11	29000	0.268893		7797.884
12	29000	0.238629		6920.227
13	29000	0.211771		6141.35
14	29000	0.187936		5450.136
15	29000	0.166783		4836.719
16	29000	0.148012		4292.343
17	29000	0.131353		3809.237
18	55000	0.116569		6411.301
19	55000	0.103449		5689.704
20	55000	0.091806		5049.324
21	55000	0.081473		4481.019
22	55000	0.072303		3976.677
23	55000	0.064165		3529.099
24	55000	0.056944		3131.896
25	55000	0.050535		2779.399
26	55000	0.044847		2466.575
27	55000	0.039799		2188.96
28	55000	0.03532		1942.591
29	55000	0.031345		1723.951
30	55000	0.027817		1529.919
Present Value of cashflows				227393.99
Note:
Annual rate of interest compounding monthly					12%
Monthly Interest rate (12/12)					1%
Effective Annual interest (1.01)^12-1					12.6825%