Question

You own a contract that promises an annuity cash flow of $150 year-end cash flows for...

You own a contract that promises an annuity cash flow of $150 year-end cash flows for each of the next 3 years. (Note: The first cash flow is exactly 1 year from today). At an interest rate of 11%, what is the present value of this contract?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

answer:

given data,

  • an annuity cash flow of $150 year-end cash flows for each of the next 3 years.
  • an interest rate of 11%,
  • we have to find out the the present value of this contract?
  • here we know the formula of teh present value of this contract: Annuity * [ 1 - 1 / ( 1 + R)n] /R
  • now substitute the values in the above formula:

= 150 * [ 1 - 1 / ( 1 + 0.11)3] / 0.11  

= 150*(1-1/(1.11)3)/0.11

= 150*(1-1)/(1.11*3)/0.11

=150*(2.443715)

=150*2.443715

= 366.557

the present value of this contract is (   366.557 )

366.557
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Using this formula, answer the following. Consider an annuity consisting of three cash flows of $8,000...
Using this formula, answer the following. Consider an annuity consisting of three cash flows of $8,000 each. If the interest rate is 6%, what is the present value (today) of the annuity if the first cash flow occurs: Today One year from today Two years from today Five years from today
Question #13: You are presented with the following cash flows: • Year 1 – Cash flow...
Question #13: You are presented with the following cash flows: • Year 1 – Cash flow of $150 • Year 2 and 3 – Cash flow of $325 each year • Year 4 and 5 – Cash flow of $720 each year Required: If the Required Rate of Return is 11% a) What is the value of the Cash Flows at the end of Year 5? b) What is the value of the Cash Flows today?
13. You own an ordinary annuity contract that will pay you RM3,000 per year for 12...
13. You own an ordinary annuity contract that will pay you RM3,000 per year for 12 years. You need money to pay back a loan in 6 years, and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan. You decide to sell your annuity for a lump sum of cash to be paid to you five years from today. If the interest rate is 8%,...
A series of cash flows may not always necessarily be an annuity. Cash flows can also...
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 five years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 $250,000 $37,500 $480,000 $300,000 $550,000 The CFO...
A. A contract features a lump-sum future flow of $46,000 three years from today. If you...
A. A contract features a lump-sum future flow of $46,000 three years from today. If you can now purchase that flow for $42,201.84, then what annual implied return would you earn on this contract? B. An annuity contract will make 8 annual payments and the first payment occurs exactly a year from today. If the annuity has a 9.2% rate and a current PV or price of $308.98, then what must be the size of its annual payments? C. An...
Consider a project with the following cash flows: Year 0: Cash flow = $500 Year 1:...
Consider a project with the following cash flows: Year 0: Cash flow = $500 Year 1: Cash flow = $0 Year 2: Cash flow = -$500 If the current market rate of interest is 8% per year, compounded annually, what is the value of this stream of cash flows expressed in terms of dollars at year 1?  (Note: This does not ask for the value as of year 0, but rather, as of year 1.) a. $0 b. $250 c. $133...
11. You own a store that is expected to make annual cash flows forever. The cost...
11. You own a store that is expected to make annual cash flows forever. The cost of capital for the store is 12.56 percent. The next annual cash flow is expected in one year from today and all subsequent cash flows are expected to grow annually by 4.33 percent. What is the value of the store if you know that the cash flow in 3 years from today is expected to be 26,400?
What is the present value of twenty-five $700 cash flows that occur at the end of...
What is the present value of twenty-five $700 cash flows that occur at the end of each year for the next 25 years at an annual interest rate of 8% compounded annually? The first cash flow occurs one year from now.
An investment promises to pay $5,000 at the end of each year for the next 7...
An investment promises to pay $5,000 at the end of each year for the next 7 years, $9,000 at the end of each year for years 8 through 20, and $3,000 at the end of each year for years 21 through 35. If you require a 10% annual rate of return on this investment, what is the present value of these cash flows at a 10% annual rate of return? Show time value of money equation and work.
You will be receiving cash flows of: $2,000 today, $2,000 at the end of year 1,...
You will be receiving cash flows of: $2,000 today, $2,000 at the end of year 1, $3,000 at the end of year 3, and $6,000 at the end of year 5. What is the net present value of these cash flows at an interest rate of 4%?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT