Consider the following stream of payments: t = Payment 1 $200 2 $400 3 $600 4 $2
ID: 2696075 • Letter: C
Question
Consider the following stream of payments:
t = Payment
1 $200
2 $400
3 $600
4 $200
a. Calculate the present value at t = 0 of the above stream of payments given an annual interest rate is 1% (i.e., r = .01).
b. Calculate the future value at t = 5 of the above stream of payments given an annual interest rate of 1% (r = .01)
Calculate the present value at t = 0 of your answer to b above at t = 5 given an annual interest rate of 1% (r = .01). How does this answer compare to your answer to part a above?
Explanation / Answer
a) 200/1.01 = 198.01
b)200*1.01^4= 208.12
200*(1.01^4)/(1.01^5) = 198.019