Consider the following timeline detailing a stream of cash flows: The timeline starts at Date 0 and ends at Date 4. The cash flow on Date 0 is indicated by a question mark. On Date 1, the cash flow is 5,000 dollars. On Date 2, the cash flow is 6,000 dollars. On Date 3, the cash flow is 7,000 dollars. On Date 4, the cash flow is 8,000 dollars. If the current market rate of interest is 10 %, then the present value (PV) of this stream of cash flows is closest to:

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Business

Drew Savage

13 May, 05:58

Consider the following timeline detailing a stream of cash flows: The timeline starts at Date 0 and ends at Date 4. The cash flow on Date 0 is indicated by a question mark. On Date 1, the cash flow is 5,000 dollars. On Date 2, the cash flow is 6,000 dollars. On Date 3, the cash flow is 7,000 dollars. On Date 4, the cash flow is 8,000 dollars. If the current market rate of interest is 10 %, then the present value (PV) of this stream of cash flows is closest to:

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Answers (1)

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Kenley Buck · Answer 1

Present value = $20,227.45

Explanation:

Giving the following information:

On Date 1, the cash flow is 5,000 dollars. On Date 2, the cash flow is 6,000 dollars. On Date 3, the cash flow is 7,000 dollars. On Date 4, the cash flow is 8,000 dollars. The current market rate of interest is 10 %.

We need to use the following formula:

PV = FV / (1+i) ^n

Date 1 = 5,000/1.10 = 4,545.46

Date 2 = 6,000/1.10^2 = 4,958.68

Date 3 = 7,000/1.10^3 = 5,259.20

Date 4 = 8,000/1.10^4 = 5,464.11

Total = $20,227.45