1. Consider the following set of finite set of quarterly cash flows. 0 1 2 3 4...
Question:
1. Consider the following set of finite set of quarterly cash flows.
0 1 2 3 4 5 quarters
|--------------- |---------------- |---------------- |---------------- |----------------- |
$1500 $1500 $2100 $1100 $2275
Assume a required rate of return (interest rate, compounding rate) of 9% per year, compounded quarterly. What is the total present value (PV) of this set of cash flows?
2. Consider the following set of finite set of semi-annual cash flows.
0 1 2 3 4 5 half-years
|--------------- |---------------- |---------------- |---------------- |----------------- |
$221 $0 $175 - $100 $100
Assume a required rate of return (interest rate, compounding rate) of 4% per year, compounded semi-annually. What is the total present value (PV) of this set of cash flows?
3. Assume a series of quarterly cash flows. Each cash flow is $1500 and they continue into the foreseeable future (i.e., forever). Given an interest rate (required rate of return) of 8% per year, compounded quarterly, what is the present value of the perpetuity?
0 1 2 3 4 5 quarters
|---------------- |--------------- |--------------- |---------------- |---------------- |----- . . .
1500 1500 1500 1500 1500
4. Assume a series of monthly cash flows. The next (upcoming) cash flow is CF1 = $550. The cash flows will grow at a rate of 12% per year into the foreseeable future (i.e., forever). The appropriate interest rate (required rate of return) is 18% per year, compounded monthly. A. Calculate the amounts of the next three upcoming cash flows (CF1, CF2, CF3) as shown on the timeline.
0 1 2 3 months
|---------------- |--------------- |--------------- |---- . . .
CF1 CF2 CF3
B. What is the present value of this growing perpetuity?
Business Statistics a decision making approach
ISBN: 978-0133021844
9th edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry