FIN 360 Lecture Notes - Lecture 7: Cash Flow
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Your daughter is currently 6 years old. You anticipate that she will be going to college in 12 years. You would like to have $137,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 12% perâ year, how much money do you need to put into the account today to ensure that you will have $137,000 in 12 âyears?
Your deposit today should be
â$.
â (Round to the nearestâ dollar.)
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Suppose you receive $180 at the end of each year for the next three years.
a. If the interest rate is 7%â, what is the present value of these cashâ flows?
b. What is the future value in three years of the present value you computed in (aâ)?
c. Suppose you deposit the cash flows in a bank account that pays 7% interest per year. What is the balance in the account at the end of each of the next three yearsâ (after your deposit isâ made)? How does the final bank balance compare with your answer in â(bâ)?
a. If the interest rate is 7%â, what is the present value of these cashâ flows?
The present value of these cash flows is
â$ .
â (Round to the nearestâ cent.)
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You have just received a windfall from an investment you made in aâ friend's business. He will be paying you $31,004 at the end of thisâ year, $62,008 at the end of the followingâ year, and $93,012 at the end of the year after thatâ (three years fromâ today). The interest rate is 13.3% per year.
a. What is the present value of yourâ windfall?
b. What is the future value of your windfall in three yearsâ (on the date of the lastâ payment)?
a. What is the present value of yourâ windfall?
The present value of your windfall is
â$.
â (Round to the nearestâ dollar.)