Question

a stream of cash flows that pays 100 every year for 10 years. the first cash flow is received at t=3. And you will received additional $1000 at the end of 12 years. what is the Pv at time zero? what is the fav at time 12?

10% rate

Answer 1

Present Value at time zero = [ $100 * 1/(1.1) ^ 3+$100 * 1/(1.1) ^4+$100 * 1/(1.1) ^5+$100 * 1/(1.1) ^6+$100 * 1/(1.1) ^7+$100 * 1/(1.1) ^8+$100 * 1/(1.1) ^9+$100 * 1/(1.1) ^10+$100 * 1/(1.1) ^11+$1100 * 1/(1.1) ^12]

=$ 826.45

Hence the correct answer is $ 826.45

Future Value = Present Value * ( 1+ Rate of interest ) ^ Time

= $ 826.45* ( 1+10%) ^ 12

= $ 2,593.75

Hence the correct answer is $ 2,593.75