I really need the Calculation steps in order to understand what you did! Thank y
ID: 2618796 • 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
Present value of a cash flow=Cash flow/(1+discount rate)^n where n is the time in years when the cash flow is received
Hence, present value of 2019 cash flow=15000/1.08
present value of 2020 cash flow=20000/1.08^2
present value of 2021 cash flow=25000/1.08^3
present value of 2022 cash flow=30000/1.08^4
present value of 2023 cash flow=35000/1.08^5
total present value=15000/1.08+20000/1.08^2+25000/1.08^3+30000/1.08^4+35000/1.08^5=96752.7788