Homework Answers
| Effective rate of interest = (1+r/n)^n -1 | |||||
| n= number of periods | |||||
| r = interest rate | |||||
| = (1+0.1/12) ^12 - 1 | |||||
| =10.4713% | |||||
| Year | Cash Flow | PV Factor | PV Of Cash Flow | ||
| a | b (increase at 2%) | c=1/1.104713^a | d=b*c | ||
| 1 | $ 38,000 | 0.90324 | $ 34,322.98 | ||
| 2 | $ 38,760 | 0.81584 | $ 31,621.80 | ||
| 3 | $ 39,535 | 0.73689 | $ 29,133.19 | ||
| 4 | $ 40,326 | 0.66559 | $ 26,840.44 | ||
| 5 | $ 41,132 | 0.60118 | $ 24,728.13 | ||
| Present worth | $ 1,46,646.53 | ||||
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