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9 April, 06:35

Which of the equations below is correct to compute the present value of the cash flows at 8% interest?

a. p=1000 (p/a, i, 8) - 150 (p/g, i, 8) + 150 (p/g, i, 4) (p/f, i, 4)

b. p=400 (p/a, i, 8) + 600 (p/a, i, 5) - 150 (p/g, i, 4)

c. p=150 (p/g, i, 4) + 850 (p/a, i, 4) + 400 (p/a, i, 4) (p/f, i, 4) ?

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Answers (1)
  1. 9 April, 09:55
    0
    All the initial values [ 1000, - 150, + 150, etc ] are amounts, that can be positive or negative, so all are valid.

    The functions (p/a, i, 8) have the form (function name, interest rate (=0.08), and number of periods), so all are valid.

    Function names p/a, p/g, p/f are all valid.

    What are not valid would be where two functions that are chained together that do not make sense.

    For example, p/g and p/f both calculate the present values, and therefore cannot be chained together. Similarly for p/a and p/f. This makes options a and c invalid, respectively.
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