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EXAMPLE 6.4: How Much is it Worth? Part 2 You are offered an investment that will make three $5,000 payments. The first payment will occur

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EXAMPLE 6.4: How Much is it Worth? Part 2 You are offered an investment that will make three $5,000 payments. The first payment will occur four years from today. The second will occur in fiv years, and the third will follow in six years. If you can earn 4 percent, what is the most this investment is worth today? What is the future value of the cash flows? We will answer the questions in reverse order to illustrate a point. The future value of the cash flows in six years is: ($5,000 x 1.042) + (5,000 x 1.04) + 5,000 = $5,408 + 5,200 + 5,000 =$15,608 The present value must be: $15,608/1.046 = $12,335.23 Let's check this. Taking them one at a time, the PVs of the

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