I really need the Calculation steps in order to understand what you did! Thank y
ID: 2392081 • Letter: I
Question
I really need the Calculation steps in order to understand what you did! Thank you!
Time Value of Money and Bonds Valuation
As Laura’s new year resolution, she wants to begin saving money for her retirement. You are hired as her financial advisor. Following your suggestion, today Laura will deposit $100,000, which she inherited from her parents, into a 5-year savings account at Citi bank, which pays 3.25% interest annually.
8. Assume Laura also told you her expected residual savings from 2019 to 2023 will be: $15,000, $20,000, $25,000, $30,000, $35,000. She wants to know the present values of these savings at an 8% discount rate. Calculate PVs of the streams.
Explanation / Answer
Depoist (p) = $100000
term (n) = 5 years
Rate of interest (r) = 3.25%
FV = P * (1+ r)n
= $100000 * ( 1 + 0.0325)5
= $ 100000 * 1.173411
= $ 117341.1
8)
PVF = 1/(1+r)n
Year1 = 1/(1 + 0.08)1 = 0.925926
Year2 = 1/(1 + 0.08)2 = 0.857339
Year Savings PVF PVCF 2019 15000 0.925926 13888.89 2020 20000 0.857339 17146.78 2021 25000 0.793832 19845.81 2022 30000 0.73503 22050.9 2023 35000 0.680583 23820.41 Present value of cash flow 96752.78