Question

Consider two CFs:

• a negative one at the beginning of Year 2022 in the amount of $104 and
• a negative one at the beginning of Year 2042 in the amount of $129.

What would be the equivalent value of these CFs at the beginning of Year 2034 at an interest rate of 5.5%?

The answer is -271.78

Please show all work

Answer 1

We have to caluculate the equilant value at beginning of year 2034 so from 2022 we have to caluculate future value of cash flow and for 2042 cash flow we have to caluculate present value of cash flow at 2034

Future value of cash flow of year 2022 at 2034

Future value = c(1+r)^n

Where c is cash flow which is 104

R is rate of interest 5.5%

And n is no of years is 12( from 2022 to 2034)

So answer is 104(1.055)^12= 197 approximately

present value of cash flow for year 2042 at 2034

that is = c/(1+r)^n here number of years 8

that is. 129/(1.055)^8 = 83 approximately

as both are negitive cash flows their future and present values are also negitive

so equilant cash flow is -83-197= -280 (approximately)