Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. T = 10 years.
2. r = 8 percent. T = 20 years.
3. r = 4 percent. T = 10 years.
4. r = 4 percent. T = 20 years.

Quote:

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Originally Posted by sindee1120

Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. t = 10 years.
2. r = 8 percent. t = 20 years.
3. r = 4 percent. t = 10 years.
4. r = 4 percent. t = 20 years.

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Assuming you meant $100 cash flow each each year for 10 or 20 years (depending on the question).

1) $671
2)$981.81
3)$811.09
4)$1,359.03

I agree too.

Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4% per year (APR) compounded monthly. Which is the better deal?:rolleyes:

Quote:

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Originally Posted by Liz Khar

Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4% per year (APR) compounded monthly. Which is the better deal?:rolleyes:

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8.4% per year (APR) compounded monthly is the better deal.


At semi annually = EAR = (1+.086/2)^2-1 = .087849 = 8.78%
At monthly = EAR = (1+.084/12)^12-1 = .08731 = 8.73%

Therefore, the Effective Annual Rate (EAR) is LOWER for monthly than it is for semi annually.

And since the question is what is best for you, the consumer who is taking out a mortgage, you would want the lowest possible interest rate possible. Therefore, compounded monthly at 8.4% is the better choice.

Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. T = 10 years.
2. r = 8 percent. T = 20 years.
3. r = 4 percent. T = 10 years.
4. r = 4 percent. T = 20 years.


1) $671
2)$981.81
3)$811.09
4)$1,359.03

I don't understand how you come to this. Can you give me an example of the 1st one and see if I can get the rest.

Thanks,

What is the present value of the following cash-flow stream if the interest rate is 6%
Year 1 Cash Flow $200
Year 2 Cash Flkow 400
Year 3 Cash Flow 300

[QUOTE=kmackey;2393642]What is the present value of the following cash-flow stream if the interest rate is 6%
Year 1 Cash Flow $200
Year 2 Cash Flow 400
Year 3 Cash Flow 300

What is the present value of the following cash-flow stream if the interest rate is 6%
Year 1 Cash Flow $200
Year 2 Cash Flow 400
Year 3 Cash Flow 300

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