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Elden [556K]
3 years ago
6

What is the value of an investment that promises to pay $4000 per year for 10 years, with the first payment three years from tod

ay, if the investor requires a 12 percent return?

Business
2 answers:
Damm [24]3 years ago
7 0

Answer:

$18,017.29

Explanation:

The value can be found by calculating the present value of the cash flows.

Present value is the value of discounted cash flows.

Present value can be found using a financial calculator

Cash flows for year 1 and 2 = 0

Cash flows from year 3 to 12 = $4,000

Discount rate = 12%

Present value = $18,017.29

I hope my answer helps you

nadezda [96]3 years ago
3 0

Answer:

The value of investment is $ 16,086.87  

Explanation:

The maximum that an investor pays for any investment is the present value of all cash flows receivable from the investment.

In calculating value ,I multiplied the cash flow in each year  with the discounting factor.The discounting factor is given as (1+r)^n,where r is the rate of return at 12%, n is the number of years from now when the cash inflow would be received.

At the end of the exercise I arrived at $16,086.87 as the present of value of the future cash flows as found in the attached.

Download xlsx
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Regardless of what the other prisoner​ does, the excellent strategy for each prisoner is to confess.

Rationalization:

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Each prisoner gets tempted with the aid of the fast jail term and turn out to be confessing. This simply makes their punishment pretty big, and also well-known for showing critical secrets and techniques to the police.

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