Calculate the present value of each of the following cash-flows. (1 point each)

Question

Calculate the present value of each of the following cash-flows. (1 point each)

a. $25,000 received at the end of 5 years at an expected rate of return (ERR) of 8%

b. $5,000 received at the end of 2 years and $12,000 received at the end of 5 years with an ERR of 7%

c. $1,200 received at the end of each of the next 10 years with an ERR of 9%

d. $1,500 received at the end of each of the next 5 years, with final payout of 25,000 at the end of the 5th year. Assume an ERR of 8%

e. Your investment has a 70% chance of a return of $1,000,000 at the end of 5 years, a 20% chance of returning $500,000 and a 10% chance of $0 return. Assume an ERR of 7%.

Explanation / Answer

a. PV = FV* Present value factor

PV= 25000*.681 = $ 17015

bPV = 5000*.834+12000*.713 = $ 21,699

c. PV = 1200* 6.41 = $ 7700

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