Question

Question #4 – Net Present Value: Financial function that you will need:

NPV: Calculates the net present value of an investment by using a discount rate and a series of future payments (negative values) and income (positive values).

NPV(rate,value1,value2, ...)

• Rate – discount rate for one period
• Value 1, etc. – cash amounts at the end of each period.

Q4.

(a) How much would you invest today to receive $7,500 at the end of each year for the first five years, then $9,000 per year for the following four years? Assume an annual interest rate of 6% compounding annually (hint: list cash flows separately and use the NPV function).

(b) What would those payments be worth at the end of the ninth year, assuming they were deposited in a bank account that earned 3.5%, compounding annually?

Answer 1

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