problems on exam #1. Completing these problems correctly is considered verificat

Question

problems on exam #1. Completing these problems correctly is considered verification of your understanding of the concepts presented in these problems. You may use your books and notes. Calculations must be clearly shown and must follow the classroom models. Only fully correct problems will be considered. 1. What is the value of P (in time period 0) of the cash flows shown? $400 $350 $300 $250 $200 4. Calculate the value of P for an interest rate of 8% (write your answer in the box below). Answer:

Explanation / Answer

Present value (P) = Future value ÷ (1 + i)n

Where i = interest

n = number of periods

P = [200 ÷ (1 + .08)1] + [250 ÷ (1 + .08)2] + [300 ÷ (1 + .08)3] + [350 ÷ (1 + .08)4] + [400 ÷ (1 + .08)5]

= 185.19 + 214.33 + 238.14 + 257.25 + 272.24

P = $ 1,167.16

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