You have an opportunity to make an investment that will pay $100 at the end of the first year, $400 at the end of the second year, ?
$400 at the end of the third year, $400 at the end of the fourth year, and $300 at the end of the fifth year
a. Find the present value if the interest rate is 8 percent.
b. What would happen to the present value of this stream of cash flows if the interest rate were 0 percent?
- fcas80Lv 75 months ago
PV = 100/1.08 + 400/1.08^2 + 400/1.08^3 + 400/1.08^4 + 300/1.08^5 = 1251.25
PV = 100/1.00 + 400/1.00^2 + 400/1.00^3 + 400/1.00^4 + 300/1.00^5 = 1600