It is the end of 2020. You plan to complete a Ph.D. in 5 years. Your...
It is the end of 2020. You plan to complete a Ph.D. in 5 years. Your favorite uncle has promised to help you with your school expenses by giving you the following amounts for Christmas:
| Year | 2021 | 2022 | 2023 | 2024 | 2025 |
| Cash flow | 1,200 | 1,600 | 1,800 | 2,000 | 2,200 |
Your uncle is fairly wealthy and very reliable. You currently have $10,000 in a savings account paying an annual interest rate of 15%.
ALL PARTS (1-7) TO BE COMPLETED.
Part 1
Create an Excel spreadsheet showing the years and cash flows as in the table above, then add a row that shows the number of years from now and another row that shows the present value of each cash flow. What is the sum of present values?
Hint: do not hardcode the discount rate into your formulas. Instead, keep it in a separate cell and refer back to it. You'll be asked to change in discount rate in parts 5 to 8.
Part 2
You also want to know how much each gift will be worth in 2025 if you save it. Add another row to your spreadsheet and calculate the value of each cash flow in 2025. What is the sum of all future values?
Part 3
What is the present value of the sum of future values calculated in the previous part?
Part 4
Now assume that the interest rate is 13%. What is the present value of all the gifts?
Part 5
Still assume that the interest rate is 13%. What is the future value of all the gifts?
Part 6
Now assume that the interest rate is 19%. What is the present value of all the gifts?
Part 7
Still assume that the interest rate is 19%. What is the future value of all the gifts?
Homework Answers
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