rrange View Window Hel 13. The present value formula at year zero for one picce
ID: 1171378 • Letter: R
Question
rrange View Window Hel 13. The present value formula at year zero for one picce of cash flow received at year t (t> 0) is: No C) PVO- Cu(1+)+1 D) Any of the above E) None of the above For 14. of What is the present value at year zero of the following cash flow at a discount rate 10%? At year 3, you will-receive $12,000 Cha A) S9,015.78 B) $12,000 C) $9,917.36 D) None of the above Ali Please use the following information for question 15 to 18 You have bought a house today at the price of $500,000. In the next two years, you will get a rent of $$0,000 each year. In year 3, you will sell the house at the price of $800,000. Suppose the discount rate (interest rate) is always l 0% each year. 15. Please draw the cash flow diagram for the above problem. 16. Please calculate the present value for each piece of cash flow. 17. Please calculate the present value for all the cash flows. 18. Suppose that the price for selling the house in year 3 is unknown, but wR know the present value for all the cash flows is S200,000, what is the price for selling your house in year 3? 6Explanation / Answer
13.
Answer: A
Required formula: PV0 = Ct / (1 + r) ^t
Where,
Present value = PV0
Future value = Ct
Rate of interest (in decimal) = r
Number of years = t [compounding period is once in a year.]
14.
Answer: A
Given,
Present value = PV0 =?
Future value = Ct = $12,000
Rate of interest (in decimal) = r = 0.10
Number of years = t = 3
Required formula:
PV0 = Ct / (1 + r) ^t
= 12,000 / (1 + 0.10) ^3
= 12,000 / 1.10 ^3
= 12,000 / 1.331
= $9,015.78
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