Question

I really need the Calculation steps in order to understand what you did! Thank you!

Time Value of Money and Bonds Valuation

As Laura’s new year resolution, she wants to begin saving money for her retirement. You are hired as her financial advisor. Following your suggestion, today Laura will deposit $100,000, which she inherited from her parents, into a 5-year savings account at Citi bank, which pays 3.25% interest annually.

8. Assume Laura also told you her expected residual savings from 2019 to 2023 will be: $15,000, $20,000, $25,000, $30,000, $35,000. She wants to know the present values of these savings at an 8% discount rate. Calculate PVs of the streams.

Answer 1

Depoist (p) = $100000

term (n) = 5 years

Rate of interest (r) = 3.25%

FV = P * (1+ r)ⁿ

= $100000 * ( 1 + 0.0325)⁵

= $ 100000 * 1.173411

= $ 117341.1

8)

Year	Savings	PVF	PVCF
2019	15000	0.925926	13888.89
2020	20000	0.857339	17146.78
2021	25000	0.793832	19845.81
2022	30000	0.73503	22050.9
2023	35000	0.680583	23820.41
Present value of cash flow			96752.78

PVF = 1/(1+r)ⁿ

Year1 = 1/(1 + 0.08)¹ = 0.925926

Year2 = 1/(1 + 0.08)² = 0.857339