Determine the annual equivalent amount over 4 years for the following cash flow (CF) pattern. The...
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Determine the annual equivalent amount over 4 years for the following cash flow (CF) pattern. The nominal annual interest rate is 3%, and it is compounded weekly
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Homework Answers
Assuming 1 yr = 52 weeks
Effective interest rate = (1+0.03 / 52)^52 - 1
= (1+0.000576923)^52 - 1
= (1.000576923)^52 - 1
= 0.0304456
NPW of cash flow = -7500 - 2000/ (1+0.0304456) + 14000 / (1+0.0304456)^2 + 18000 / (1+0.0304456)^3 + 4000 / (1+0.0304456)^4
= -7500 - 2000/ (1.0304456) + 14000 / (1.0304456)^2 + 18000 / (1.0304456)^3 + 4000 / (1.0304456)^4
= 23743.02
Equivalent annual worth = 23743.02 * (A/P,3.04456%,4)
= 23743.02 * 0.0304456 * ((1 + 0.0304456)^4)/((1 + 0.0304456)^4-1)
= 23743.02 * 0.0304456 * ((1.0304456)^4)/((1.0304456)^4-1)
= 6394.32
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