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A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept
A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: The CFO of the company believes that an appropriate annual interest rate on this investment is 9%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? $600,000$1,395,097$1,975,000$1,775,000 An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment opportunity? Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 4%. But the bank is compounding bimonthly (every two months). What is the effective interest rate that Rahul would pay for the loan? 4.250% 3.926% 4.067% 4.381% Another bank is also offering favorable terms, so Rahul decides to take a loan of $12,000 from this bank. He signs the loan contract at 5% compounded daily for 12 months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365. ) $13,119.82 $12,236.75 $12,615.21 $13,372.12
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