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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Present value of a) Lump Sum and b)annuity
Expert Solution
Step 1
Present Value is the value in present time for all the cash flows that will be invested/recovered in some future specific date.
This shows the value of money in zero period.
It can be calculated using the formula = 1/(1+r)^1 + 1/(1+r)^2 + 1/(1+r)^3 + 1/(1+r)^n
Here r is the Interest rate which is used for discounting the cash flows.
n = number of year
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