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1. You are offered an investment that will pay you $200 in one year, $400 the...

1. You are offered an investment that will pay you $200 in one year, $400 the next year, $600 the next year and $800 at the end of the next year. You can earn 10 percent on very similar investments. What is the most you should pay for this one?

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Answer #1
Inv
Discount rate 0.1
Year 0 1 2 3 4
Cash flow stream 0 200 400 600 800
Discounting factor 1 1.1 1.21 1.331 1.4641
Discounted cash flows project 0 181.8182 330.5785 450.7889 546.41076
NPV = Sum of discounted cash flows
NPV Inv = 1509.6
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
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