Question

Question (2): (4 Marks) 1- An investment pays $400 in one year, X amount of dollars in two years, and $500 in three years. The total present value of all the cash flows (including X) is equal to $1,500. If (i) is 6 percent, what is X? (2 Marks) 2- Calculate the future value of $12,000 invested today for 3 years if your investment pays 8% compounded semiannually. (1.0 Mark) 3. Calculate the present value of $9,000 received 6 years from today if your investment pays 12% compounded quarterly (1.0 Mark)

Answer 1

1-

Given,

Cash flow in one year (CF₁) = $ 400

Cash flow in two years (CF₂) = $ X

Cash flow in three years (CF₃) = $ 500

Interest rate (r) = 6% or 0.06

Solution :-

CE CFz Present Value =- of Cash Flows x (lt -) / (tajat (1723 $ 1500 = $400 (1+0.06) $500 1 (1+0.06) 170.062 t $ 1500 = $400 t ou + ^ + Soo (1.063 $ 1500 , = $377.358490566 + x 1377 358 ugosh - X (1.062 Soo 1.191016 $1500 = $377.358490566 + x + $419.8096415 1.1236 $ 1500-$377.358490566-$419.8096415 = x 1.1236 $ 702.83186 794 = X 1.1236

$789.70 So, X = = x $789.70