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1. Which is the correct way to calculate the present value of the following cash flow stream at a 10% discount rate?

0 1 2 3 4 5 6 7 8 9 10

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PV=? $35 $35 $35 $35 $35 $35 $20 $20 $20 $20

A. PV = 35 [PVIFA(10%, 6)] + 20 [PVIFA(10%, 4)]

B. PV = 20 [PVIFA(10%, 10)] + 15 [PVIFA(10%, 6)]

C. PV = 35 [PVIFA(10%, 10)] – 15 [PVIFA(10%, 4)]

D. PV = 35 [PVIFA(10%, 6)]/(1.10)6 + 20 [PVIFA(10%, 4)]

2. Starting from today (t=0), you are saving $1,500 a year for the next three years (four investments in total). You want to spend your savings at the end of the third, fourth, and fifth year equally. If the market interest rate is 10%, how much can you spend at the end of the fifth year?

a. $2,544.84

b. $2,799.32

c. $3,079.25

d. $3,646.50

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92707682

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