Question

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

Answer #1

Question 3 (Total marks=7)
(a) Calculate the present value of an annuity due consisting of
three cash flows of
$1,000 each, each one year apart. Use a 6% compounded interest rate
per year.
(3.5 marks)
(b) Calculate the future value at the end of the third period of
an annuity due consisting
of three cash flows of $1,000 each, each one year apart. Use a 6%
compounded
interest rate per year.

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?

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.

•Assume the effective annual interest rate is 11%. The present
value of an annual annuity consisting of 17 payments starting one
year from today where the first 6 payments are $25,000 each and the
remaining payments are $30,000 each is ?

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...

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...

3. a) Consider an annuity of 6 cash flows of
$5,000 payable annually. If the interest rate is 7 per cent per
annum, what is the value of this annuity today if the first cash
flow is to be paid immediately? [8 marks]
3. b) You are considering the
purchase of a home for $700,000. You have available a deposit of
$100,000. The bank will lend you money at 7 per cent per annum
compounded monthly over a period up to...

(a) What is the future value of the following unequal cash flows
using 9% interest rate?
YEAR
1
2
3
4
5
CASH FLOW
$600
$800
$500
$400
$900
(b) What would be an annuity payment (PMT) that would give the
same future value
using the same interest rate and same
number of years?
(c) What is the present value of the following unequal cash
flows using
7.5% interest rate?
YEAR
1
2
3
4
CASH FLOW
$950 ...

What is the present value of an annuity of $6,000 per year, with
the first cash flow received three years from today and the last
one received 25 years from today? Use a discount rate of 7 percent.
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
Present value
$

Using Formula OR Excel function.
For
problems 5 & 6 use required nominal annual
return:
10.00%
5. Consider
the following end-of-year cash flows:
Year
Cash flow
0
$0.00
1
$40.00
2
$60.00
3
$60.00
Present Value
a. What is
the present value of these cash flows (in year 0)?
b. If the
purchase price of this investment is $140 today, would you buy it?
Why?
(Compare instrinsic value to actual price)
c. What is
the expected rate of return...

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