Question

Will rate!!

You are planning to withdraw $100 in Year 1, $150 in Year 3, and $200 in Year 5. How much should you invest today, at an interest rate of 5%? Draw a cash flow diagram for your understanding. You need not submit the cash flow diagram Choose the most appropriate model using functional notations that will answer the question 0 P.200 PF. 5%, 1) +15OPF, 5%, 3) + 100 PF. 5%, 5) 0 p.100(F/P. 5%, 1) + 150E/P.5%, 3) + 200(F/R 5%, 5) 0 P-100 P/E 5%, 1) + 150 PE 5%, 3) + 200 PE, 5%, 5) O P: 1000P/F, 5%, 1) + 150 P/E 5%,2+200 PF.5%.3)

Answer 1

Question 1

Withdrawal in Year 1 = $100

Withdrawal in Year 3 = $150

Withdrawal in Year 5 = $200

Following is the required cash flow diagram -

Following is the functional notation for the amount to be invested today (P) -

P = $100(P/F, 5%, 1) + $150(P/F, 5%, 3) + $200(P/F, 5%, 5)

Hence, the correct answer is the option (3).

Question 2

Calculate the amount to be invested today -

P = $100(P/F, 5%, 1) + $150(P/F, 5%, 3) + $200(P/F, 5%, 5)

P = ($100 * 0.9524) + ($150 * 0.8683) + ($200 * 0.7835)

P = $95.24 + $130.24 + $156.70

P = $382.18

The amount that should be invested today is $382.18.