10.00 points Investment X offers to pay you $5.400 per year for seven years, whe

Question

10.00 points Investment X offers to pay you $5.400 per year for seven years, whereas Investment Y offers to pay you $7,500 per year for four years. Calculate the present value for Investment x and Y it the discount rate is 6 percent (Do not round intermediate calculations and round your final answers to 2 decimal places, le.g. 32.16) te calculations and round your final answers to 2 decimal places. fe.g. 32.16) Present value Investment x InvestmentY Calculate the present value for Investment X and Y il the discount rate is 16 percent (Do not round intermediate calculations and round your final answers to 2 decienal places. le.-9-32.16) Present value Investment X investment Y References Book & Resources

Explanation / Answer

The present value of ordinary annuity (regular stream of cash flows) can be calculated with the use of following formula:

Present Value = Cash Flow*[(1+(1+r)^-n)/r] where r = Rate of Interest and n = Years

______________

Part a) When discount rate is 6%

Using the values provided in the question in the above formula, we get,

Present Value (Investment X) = 5,400*[(1-(1+6%)^-7)/6%] = $30,144.86

Present Value (Investment Y) = 7,500*[(1-(1+6%)^-4)/6%] = $25,988.29

_______

Tabular Representation:

______________

Part b) When discount rate is 16%

Using the values provided in the question in the above formula, we get,

Present Value (Investment X) = 5,400*[(1-(1+16%)^-7)/16%] = $21,808.25

Present Value (Investment Y) = 7,500*[(1-(1+16%)^-4)/16%] = $20,986.35

_______

Tabular Representation:

Present Value Investment X $30,144.86 Investment Y $25,988.29

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.