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s/1304117 com/courses/14522/quizzes/7391 times as you need, until it closes at midnight on Thursday, when you achieve the score of 50% or more, the link to a check-up will be released 1.4 pts Question 4 Create a cash flow diagram for the following scenario by entering the letter denoting the correct location of the corresponding parameter in the cash flow diagram. For example, A would be the location of a positive cash flow at time O An investor makes an initial investment of $4000 L at time 0, with an interest rate of 3% per year. The investor intends to withdraw $1000 jafter three years, and $2000 after another three years. F G L M N O P Q R S TU V Previous Next

Explanation / Answer

Question 4

With respect to a cash flow diagram, deposits are shown by downward arrows and withdrawals are shown by upward arrow.

Initial investment was made at time 0. So, it will be denoted by downward arrows at time 0. This was represented by letter L.

Investor will withdraw $1,000 after three years. This will be represented by upward arrow at year 3. This is denoted by letter D.

Further, investor is withdrawing $2,000 after another three years. This will be represented by upward arrow at year 6. This is denoted by letter G.

Thus,

An investor makes an initial investment of $4,000 L at time 0, with an interest rate of 3% per year. The investor intends to withdraw $1,000 D after three years, and $2,000 G after another three years.

Question 5

With respect to a cash flow diagram, deposits are shown by downward arrows and withdrawals are shown by upward arrow.

First deposit was made in year 3. This will be represented by downward arrow at year 3. This is denoted by letter D.

Second deposit was made in year 4. This will be represented by downward arrow at year 4. This is denoted by letter P.

Third deposit was made in year 5. This will be represented by downward arrow at year 5. This will be denoted by letter Q.

Balance is withdrawan at the end of 3 more years. This will be represented by the upward arrow at year 8. This is denoted by letter I.

Thus,

A farmer makes three consecutive deposit of $1,000 each in years 3 O, 4 P, and 5 Q, at 3% interest per year. He then plans to withdraw the balance in full I after three more years.

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