Use formulas to find your answer by completing the PV Table: Today Year 1 Year 2 Year 3 Year 4 Year 5 Interest Rate 0% Time 1 2 3 4 5 Cash Flow 200 200 200 PV Interest Factor 0.91 0.83 0.75 0.68 0.62 Present Value 497.37 181.82 165.29 150.26 0.00 0.00 First we must calculate the PV Interest Factor for each cash flow. Then, we find the PV of each cash flow. Lastly, we sum the PVs to get the PV of the annuity. 1 The PVIF formula is (1/(1+r) t). For Year 1 it is in cell E63. 2 For Year 1 ===>In cell E63 enter: =(1/((1+$D$60)^1)) 3 For Year 2 through 5, copy your formula from cell E63. You must change the t value. 4 Year 2 looks like this: =(1/((1+$D$60) 2)) Hint: You can copy formulas from cell E63 by going to that cell, finding the black cross at the right bottom comer, and then hold down mouse and drag across. Change the t values! Finding the PV of all the cash flows: 5 Find the Present Value of each year's cash flow by multiplying CF * PVIF: =E62*E63. Copy across. 6 Sum the cash flows from years one through five by clicking on cell D64. 7 In cell D64 write: =sum(E64:164) 8 Your answer should be $758.16 = PV of the annuity. Test your skills with this problem: What is the PV of the cash flows if the interest rate is 20%? 598.12 $598.12 What is the PV of the cash flows if the interest rate is 2%? 942.69 $942.69 Hint: You need to change the discount rate in cell D60. Copy your answer by using the paste special (with values)