Question

Greg decides to invest in two investments A and B. The cash flows from these two investments are as follows:

t=1       t=2       t=3       t=4

Inv. A $475    $381    $533    $291

Inv. B $325    $419    $267    $509

What is the present value of Greg's total investment if the required rate of return is 11%? [Hint: See if the problem can be solved as present value of an annuity]

Answer 1

After calculation of present value of both the Investment using the required rate of return as discounting rate. We get

Present value of Investment A= 1318.46

Present value of Investment B = 1163.32

So the present value Both the Investment are

= ( 1318.46+1163.32) = 2481.78

Or approximately $ 2482.