Question
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
d. $77
An annuity pays $12 per year for 100 years, with the first payment occurring in one year. What is the present value (P) of this annuity given that the discount rate is 8%?
- $146.63
- $151.45
- $149.93
- $144.62
Homework Answers
Answer #1
Q-1)
Calculating the Value of Stream of cashflow at year 1:-
Value of cashflow at Year1 = CF0(1+r)^1 + CF2/(1+r)^1
where, CF0 = Cash flow in Year 0= $500
CF2 = Cash flow in Year 2= -$500
r = Interest rate = 8%
Value of cashflow at Year1 = $500*(1+0.08)^1 + [-$500/(1+0.08)^1]
Value of cashflow at Year1 = $540 - $462.96
Value of cashflow at Year1 = $77
Option D
Q-2)
calculating the Present Value of Annuity:-
Where, C= Periodic Annuity Payments = $12
r = Periodic Interest rate =8%
n= no of periods = 100
Present Value = $149.93
Option 3
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