Please show your work 1. What is the present value of the following cash flow st
ID: 2810391 • Letter: P
Question
Please show your work 1. What is the present value of the following cash flow stream at a rate of 4.0%? Years: 0 3 CFs: -$500 S2,450 S3,175 $4,400 2. You want to buy a new ski boat 2 years from now, and you plan to save $8.200 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit, 2 years from now? 3. You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save S3,500 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today? 4.1f sales grow at 5% per year, howlong before sales double? 5. Bank A pays 4% interest compounded annually on deposits, while Bank B pay 3.5% compounded daily. Based on the EAR (or EFF%), which bank should you use? Explain. (hint: calculate each EAR and then compare two EARs.)Explanation / Answer
As per rules I will answer the first 4 subparts of the question
1: PV of the cash flows = CF1/(1+r)^1 + .....CFn/(1+r)^n
= -500+ 2450/1.04^1 + 3175/1.04^2 + 4400/1.04^3
=$8702.82
2: We need to compute the future value of the deposits.
FV=P*(1+r)^n + P
FV = 8200*1.062^1 + 8200
= $16908.4
3: We will use FV of annuity due formula for this
FV = (1+r)*P*((1+r)^n-1)/r
= 1.057* 3500*(1.057^4-1)/0.057
=$16111.99
4: Let sales be 100 which is the PV
FV required = 200
Rate = 5%
FV= PV*(1+r)^n
200=100*1.05^n
n = 14.21