Question

Present Value of Uneven Cash Flow 10. You expect to receive $300, $400, $500, $300, $400 and $500 at the end of each year over the next 6 years. If an annual interest rate is 4 percent, what is the present value of this uneven cash flow stream? a. $2,083 11. You expect to receive $300, $400, $500, $300, $400 and $500 at the end of each year over the next 6 years. If an annual interest rate is 2 percent, what is the present value of this uneven cash flow stream? a. $2,233

Answer 1

Answer 10:
Present value is calculated by discounting the future cash flows using a discount rate (here 4%)
=300/(1+4%)+400/(1+4%)^2+500/(1+4%)^3+300/(1+4%)^4+400/(1+4%)^5+500/(1+4%)^6
=288.4615385+369.8224852+444.4981793+256.4412573+328.7708427+395.1572629
=2083.1515 or $2083 (Rounded to the nearest whole number)

Answer 11:
Present value is calculated as:
=300/(1+2%)+400/(1+2%)^2+500/(1+2%)^3+300/(1+2%)^4+400/(1+2%)^5+500/(1+2%)^6
=294.1176471+384.4675125+471.1611673+277.1536278+362.2923239+443.9856911
=2233.1779 or $2233 (Rounded to the nearest whole number)