Question
1. Consider the following cash flow streams: Year Cash Stream A Cash Stream B 1 $100 $300 2 400 400 3 400 400 4 400
1. Consider the following cash flow streams: Year Cash Stream A Cash Stream B 1 $100 $300 2 400 400 3 400 400 4 400 400 5 300 100 The appropriate discount rate is 12 percent. a. What is the present value of each cash flow stream? b. What is the future value of each cash flow stream? c. What is the value of each cash flow stream at Year 3?
2. Suppose you wish to save $2,000 at the end of five years by making the following deposits: Year Deposits 1 $100 2 400 3 400 4 400 5 300 What interest rate must you earn?
3. Suppose an investment promises to pay the following cash flows: Year Deposits 1 $1000 2 4000 3 3000 4 4000 5 3000 If the interest rate is 8%, what is the highest price you are willing to pay?
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