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10 March, 00:25

Ryan Campbell has invested in a fund that will provide him a cash flow of $11,700 for the next 20 years. If his opportunity cost is 8.5 percent, what is the present value of this cash flow stream? (Round to the nearest dollar.)

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  1. 10 March, 00:33
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    The correct answer is $110,721.

    Explanation:

    According to the Scenario, the given data are as follows

    Payment (pmt) = $11,700

    Time period (t) = 20 years

    Rate of interest (r) = 8.5%

    So, we can calculate the present value of this cash flow stream by using following formula:

    PV = PMT * ((1 - (1+r) ^ (-t)) / r

    So, by putting the value, we get

    = $11,700 * ((1 - (1 + 0.085) ^-20)) / 0.085

    = $11,700 * (1 - 0.19561638835) / 0.085

    = 110721.0383094706

    = $110,721

    Hence, the present value of this cash flow stream is $110,721.
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