A (yearly) cash flow stream is X = (-65, 21, 21, 21, 21, 21, 21). The spot rates (yearly in percentage) are s = (5.0, 5.3, 5.6, 5.8, 6.0, 6.1).
(a) Find the current discount factors dk.
(b) Use the discount factors to determine the (net) present value of the cash flow stream. (Keep your answer to 2 decimal places, e.g. xxx.12)
Year | Cash flow | Spot rate | a...Discount Factors | PV of C/f | |
1 | 2 | 3 | 4 | 5 | 6=2*5 |
0 | -65 | 1 | -65 | ||
1 | 21 | 0.05 | 1/1.05^1= | 0.95238 | 20 |
2 | 21 | 0.053 | 1/1.053^2= | 0.90187 | 18.9392 |
3 | 21 | 0.056 | 1/1.056^3= | 0.84920 | 17.8331 |
4 | 21 | 0.058 | 1/1.058^4= | 0.79810 | 16.7601 |
5 | 21 | 0.06 | 1/1.06^5 = | 0.74726 | 15.6924 |
6 | 21 | 0.061 | 1/1/061^6= | 0.70098 | 14.7207 |
b..Net Present value of the C/f stream = | 38.9455 | ||||
ie. | 38.95 | ||||
ANSWERS: | Discount factors: | ||||
1 | |||||
0.95238 | |||||
0.90187 | |||||
0.84920 | |||||
0.79810 | |||||
0.74726 | |||||
0.70098 | |||||
b..Net Present value of the C/f stream = | 38.95 |
A (yearly) cash flow stream is X = (-65, 21, 21, 21, 21, 21, 21). The...
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