Investment X offers to pay you $5,700 per year for 9 years, whereas Investment Y

Question

Investment X offers to pay you $5,700 per year for 9 years, whereas Investment Y offers to pay you $8,300 per year for 5 years.

If the discount rate is 6 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

If the discount rate is 16 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Investment X offers to pay you $5,700 per year for 9 years, whereas Investment Y offers to pay you $8,300 per year for 5 years.

Explanation / Answer

Discount rate is 6% Cashflows PV Factor Present Value year X Y at 6% X Y 1 5700 8300 0.943396 5377.36 7830.19 2 5700 8300 0.889996 5072.98 7386.97 3 5700 8300 0.839619 4785.83 6968.84 4 5700 8300 0.792094 4514.93 6574.38 5 5700 8300 0.747258 4259.37 6202.24 6 5700 0.704961 4018.28 0.00 7 5700 0.665057 3790.83 0.00 8 5700 0.627412 3576.25 0.00 9 5700 0.591898 3373.82 0.00 Total 38769.65 34962.62 Answer: Present Value Investment X 38769.65 Investment Y 34962.62 Discount rate is 16% Cashflows PV Factor Present Value year X Y at 16% X Y 1 5700 8300 0.862069 4913.79 7155.17 2 5700 8300 0.743163 4236.03 6168.25 3 5700 8300 0.640658 3651.75 5317.46 4 5700 8300 0.552291 3148.06 4584.02 5 5700 8300 0.476113 2713.84 3951.74 6 5700 0.410442 2339.52 0.00 7 5700 0.353830 2016.83 0.00 8 5700 0.305025 1738.65 0.00 9 5700 0.262953 1498.83 0.00 Total 26257.30 27176.64 Answer: Present Value Investment X 26257.30 Investment Y 27176.64

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