S26-9 Determining present value Learning Objective 3 Use the Present Value of $1 table (Appendix A, Table A-1) to determine the present value of $1 received one year from now. Assume a 8% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years. Round to three decimal places. Requirements 1. What is the total present value of the cash flows received over the five- year period? 2. Could you characterize this stream of cash flows as an annuity? Why or why not? 3. Use the Present Value of Ordinary Annuity of $1 table (Appendix A, Table A-2) to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1. 4. Explain your findings.
S26-9 Determining present value Learning Objective 3 Use the Present Value of $1 table (Appendix A, Table A-1) to determine the present value of $1 received one year from now. Assume a 8% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years. Round to three decimal places. Requirements 1. What is the total present value of the cash flows received over the five- year period? 2. Could you characterize this stream of cash flows as an annuity? Why or why not? 3. Use the Present Value of Ordinary Annuity of $1 table (Appendix A, Table A-2) to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1. 4. Explain your findings.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:S26-9 Determining present value
Learning Objective 3
Use the Present Value of $1 table (Appendix A, Table A-1) to determine the
present value of $1 received one year from now. Assume a 8% interest rate. Use
the same table to find the present value of $1 received two years from now.
Continue this process for a total of five years. Round to three decimal places.
Requirements
1. What is the total present value of the cash flows received over the five-
year period?
2. Could you characterize this stream of cash flows as an annuity? Why or
why not?
3. Use the Present Value of Ordinary Annuity of $1 table (Appendix A, Table
A-2) to determine the present value of the same stream of cash flows.
Compare your results to your answer to Requirement 1.
4. Explain your findings.
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