Question 4 1 pts Cash flow 1 has an interest rate of 4.7% CASH FLOW 1 Year 0: $2

Question

Question 4 1 pts Cash flow 1 has an interest rate of 4.7% CASH FLOW 1 Year 0: $2000 Year 1: $9000 Year 2: -$2000 Year 3: $2000 CASH FLOW 2 Year O:-$1000 Year 1: $0 Year 2: $0 Year 3: $13000 What is the interest rate for cash flow 2 such that cash flow 1 and 2 have the same present values? Enter your answer as a percentage between O and 100 Question 5 1 pts "If you deposit $296 now (n=0) and 2 years from now (n-2) you deposit $853 in a savings account that pays 7% annual interest, how much would you have 7 years from now?"

Explanation / Answer

4.

For cash flow 1:

Present value of cash flows = 2000 + 9000/1.047 -2000/1.047^2 + 2000/1.047^3

Present value of cash flows = $10514.09

Let, R is the rate at which, the present value of cash flows in cash flow 2 will be equal to the present value of cash flows in cash flows 1.

So, For cash flow 2,

10514.09 = -1000 + 0 + 0 + 13000/(1+R)^3

13000/(1+R)^3 = 11514.09

13000/11514.09 = (1+R)^3

1.12905 = (1+R)^3

R = (1.12905)^(1/3) - 1

R = 4.1289%

5.

Future value after 7 years = 296*(1+7%)^7 + 853*(1+7%)^5

Future value after 7 years = $1671.69

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