Question 2 (15 marks)

This question relates to material covered in the Topics 1 to 3. This question addresses the 5th and 6th subject learning outcomes.

Following is an example of a cash flow timeline developed using the Table Function within MS Word. Please use this example as a means to develop a similar timeline in your answer to the following question.

Example only:

%		5%				6.5%
Year	0		1		2		3
CFi	$0		$1,000		$1,000		$1,000

Below are the expected cash flows and interest rates expected from an investment over the next ten years. Cash flows will occur at the end of the nominated years.

Cash Flows				Interest Rates
Year 0				Years 1 - 2	8%
Year 1
Year 2		+$ 6,500
Year 3		+$ 1,500		Years 3 8	6%
Year 4
Year 5
Year 6		-$ 2,500
Year 7
Year 8
Year 9		+$ 10,000		Years 9 - 10	7%
Year 10

i. Using the Table function within MS Word, draw a time line showing the above cash flows and interest rates (following the example above) (6 marks). ii. What will be the value of all these cash flows at each of the following times: (9 marks)

Time₁

Time₅

Time₁₀