Question

# Instruction: Clearly present the cash flow diagram(s), equivalency model(s), assumptions made and detailed calculations for each...

Instruction: Clearly present the cash flow diagram(s), equivalency model(s), assumptions made and detailed calculations for each problem as applicable.

Question. A series of six real dollar payments are made. The first payment made at the end of the first year is for \$12,000 and each subsequent payment increases at the rate of 5% per year. If the inflation rate has averaged 3% and the market interest rate is 12%, determine the present of the series.

 The interest rate in real terms so that real interest rate is 12 - 3 = 9%. We have first payment at the end of first year so there is no interest charged. Find the present value of each annual payment using A/ (1 + r) ^n. In the end, add all the values to get the present worth PW Time The Cash flows The Present value 0 -12000 -12000 1 -12600 -13734 -2 -13230 -15718.6 3 -13891.5 -17989.9 4 -14586.1 -20589.4 5 -15315.4 -23564.6 6 -16081.1 -26969.7 PW -130566

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