Use the Present Value of $1 table to determine the present value of $1 received one year from now. Assume a 10% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years.
| a. | What is the total present value of the cash flows received over the five-year period? |
| b. | Could you characterize this stream of cash flows as an annuity? Why or why not? |
| c. | Use the Present Value of Annuity of $1 table to determine the present value of the same stream of cash flows. Compare your results to your answer to Part A. |
| d. | Explain your findings. |
i Reference Present Value of $1 Periods 6% 0.943 0.890 0.840 0.792 0.747 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.820 0.780 0.742 0.672 2% 3% 0.980 0.971 0.961 0.943 0.942 0.915 0.924 | 0.888 0.906 0.863 0.888 0.837 0.871 0.813 0.853 0.789 0.837 0.766 0.820 0.744 0.8040.722 0.788 0.701 0.773 0.681 0.758 0.661 0.743 0.642 0.673 0.554 | 0.610 0.478 0.552 0.412 0.453 0.307 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.456 0.375 0.308 0.208 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.377 0.295 0.231 0.142 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.312 0.233 0.174 0.097 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.215 0.146 0.099 0.046 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.149 0.092 0.057 0.022 12% 14% 16% 0.893 0.877 0.862 0.797 0.769 0.743 0.712 0.675 0.641 0.636 0.592 | 0.552 0.567 0.519 0.476 0.507 0.456 0.410 0.452 0.400 0.354 0.404 0.351 0.305 0.361 0.308 0.263 0.322 0.270 0.227 0.287 0.237 0.195 0.257 0.208 0.168 0.229 0.1820.145 0.205 0.160 0.125 0.183 0.140 0.108 0.104 0.073 | 0.051 0.059 0.038 0.024 0.033 0.0200.012 0.0110.005 0.003 18% 20% 0.847 0.833 0.7180.694 0.609 0.579 0.516 0.482 0.437 0.402 0.370 0.335 0.314 0.279 0.266 0.233 0.225 0.194 0.191 0.162 0.162 0.135 0.137 0.112 0.116 0.093 0.099 0.078 0.084 0.065 0.037 0.026 0.016 0.010 0.007 | 0.004 0.001 0.001 Print Done Reference Periods 16% 0.862 1.605 2.246 2.798 3.274 von W 6.472 7.020 Present Value of Annuity of $1 1% 2% 3% 4% 5% 6% 8% 10% 12% 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 2.9412.884 2.829 2.775 2.723 2.673 2.577 2.487 2.402 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 4.853 | 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 5.795 5.601 5.417 5.242 5.076 | 4.917 4.623 4.355 4.111 6.728 6.230 6.0025.786 5.582 5.206 4.868 4.564 7.652 7.325 6.733 6.463 6.210 5.747 5.335 4.968 8.566 8.162 7.786 7.435 | 7.108 6.802 6.247 5.759 5.328 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 12.134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 18.046 16.351 14.877 13.590 12.462 | 11.470 9.818 8.514 7.469 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.4278.055 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.7798.244 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 | 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.623 6.873 7.003 7.105 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.929 6.097 6.177 6.233 18% 20% 0.847 0.833 1.566 1.528 2.174 2.106 2.690 2.589 3.127 | 2.991 3.498 3.326 3.812 3.605 4.078 3.837 4.303 4.031 4.494 4.192 4.656 4.327 4.793 4.439 4.910 4.533 5.008 4.611 5.092 4.675 5.353 4.870 5.467 4.948 5.517 4.979 5.548 4.997 Print Done
