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Usimov [2.4K]
3 years ago
7

What is the present value of the following cash-flow stream if the interest rate is 5%? (Do not round intermediate calculations.

Round your answer to 2 decimal places.)
Year Cash Flow
1 $190
2 390
3 290
Business
1 answer:
ira [324]3 years ago
6 0

Answer:

present value  = $785.21

Explanation:

given data

interest rate r = 5%

Year 1 Cash Flow  C1 = $190

Year 2 Cash Flow  C2 = $390

Year 3 Cash Flow  C3 = $290

time t = 3 year

solution

we get here present value of cash-flow stream that is express as

present value = \frac{C1}{(1+r)} + \frac{C2}{(1+r)^2} + \frac{C3}{(1+r)^3}    ......................1

put here value and we get

present value  = \frac{190}{(1+0.05)} + \frac{390}{(1+0.05)^2} + \frac{290}{(1+0.05)^3}

present value  = $785.21

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Hi, John will pay the loan by paying the yearly interest and the rest is going to go to the sinking fund, so, if he has $1,627.45 and the annual interest of the loan are $1,000, he will be depositing $627.45 into the sinking fund for ten years. Therefore, the future value of the annual deposits of the sinking can be found by using the following formula.

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