Question

What is the present value of the following net cash flows if the discount rate is 12%:

Year Cash Flow
1-5 $10,000 each year
6-10 $15,000 each year
11-15 $17,000 each year

A. $ 86,462

B. $ 79,252

C. $151,400

D. $144,037

Sarah borrowed $125,000 to buy a house, her your loan cost was 11% and she promised to repay the loan in 15 equal annual payments. What is the principal outstanding after the first loan payment?

A. $121,367

B. $123,088

C. $107,617

D. None of the above

Answer 1

Select - Option - A ........ $ 86,462

Year	CF	DF	PV
1	10000	0.892857	8928.571
2	10000	0.797194	7971.939
3	10000	0.71178	7117.802
4	10000	0.635518	6355.181
5	10000	0.567427	5674.269
6	15000	0.506631	7599.467
7	15000	0.452349	6785.238
8	15000	0.403883	6058.248
9	15000	0.36061	5409.15
10	15000	0.321973	4829.599
11	17000	0.287476	4887.094
12	17000	0.256675	4363.477
13	17000	0.229174	3895.961
14	17000	0.20462	3478.537
15	17000	0.182696	3105.836
	Present value		86460.37

Question - 2 ........ Select - A. $121,367

(1) Find the PVIFA = [ 1 - (1+r)^-n ] / r = [ 1 - (1.11)^-15 ] / 0.11 = 7.1908695759

(2) Find the annual equal installment = Principle / PVIFA = 125,000 / 7.1908695759 = 17383

(3) Principle outstanding after 1st installment = 125000 * (1.11) - 17383 = 121,367